Irish bank debt deal might not be achieved by October

The chances of the Government securing a deal to reduce the State's banking debt before the end of October looks unlikely, Bloomberg is reporting.

In July EU economics commissioner Olli Rehn said concrete proposals on the Irish question would be presented to euro-area finance ministers this month, before a final decision in October.

However, these details are unlikely to be on the agenda when ministers meet in Cyprus next week, Bloomberg said, citing a source close to the talks.

European leaders are said to be focusing primarily on bringing down Spanish borrowing costs before turning attention to Ireland.

Central Bank governor Patrick Honohan said today there were “sequencing issues” as the deal to reduce the banking debt on EU states was focused on Spain first, with a “read across to Ireland”.

“So there is going to be sequencing issue on a timetable before you see all that finalised,” he added.

Minister for Finance Michael Noonan will visit a number of European capitals next week as part of his campaign to lower the €64 billion cost of bailing out Ireland's financial system.

Mr Honohan said today he was sure "something would be done" on the €30 billion-euro cost of saving the former Anglo Irish Bank, though the timing was unimportant.

The Department said today officials and Ministers are continuing to work on the issue. "Upcoming euro group meetings in autumn are very important as we seek to meet the timeline of October set by Commissioner Rehn," it said.

Irish bond yields have fallen since EU leaders agreed on June 29th to examine the Irish financial sector "with a view to further improving the sustainability of the well- performing adjustment program".

Addressing a conference at Trinity College, Dublin, today, Mr Honohan has said the Bundesbank would be won over to the ECB’s bond buying programme by the disciplined nature of its operation.

In response to opposition from the German central bank to the plan, he said the bond-buying programme was complex and had "downsides and upsides”.

“The upsides far exceed the downsides and I think the reservations that some people have about the programme are understandable and it is not surprising to see them expressed,” he said.

“I think critics of the programmes will gradually realise that it is being operated in a business-like and a disciplined way and it has all the positives of the programme without any of the potential negatives that they see.”

Supporting the ECB’s new bond buying programme, Mr Honohan said the move was "absolutely crucial for Ireland" and will remove the "tail risk" around euro.

Mr Honohan said it showed the ECB has the tools to fix the euro crisis and is prepared to use them.

Ireland would benefit from the stability of the euro area, and the restoration of a monetary system that is common across Europe, he said, rather than the “discrepancy of interest rates and monetary conditions that has existed over the past year”.

"These discussions have evolved over a period of time – there was a sense of let’s finalise this and make sure we have all the details right."

Mr Honohan said he does not expect the ECB to start buying Irish bonds immediately but the programme would apply to countries coming back into the market.

Mr Honohan said while the Irish economy has performed better than the stress case in the central bank's stress testing of the nation's banks in 2011, lenders need to return sufficient profits to secure additional capital in future years.

Mr Honohan later told the conference that losses should be imposed on both junior and senior bondholders in the clean-up of failed banks.

The Government bank guarantee of 2008 "propelled Ireland to a very stressed level of public indebtedness" and the refusal of the troika of the lenders to the country to allow burden-sharing with senior bondholders after the bailout of 2010 landed further costs on the State, he said.

"The extensive socialisation of losses - initially through the September 2008 guarantee and subsequently when the troika refused to countenance burden-sharing with the unguaranteed senior bondholders - has been rightly subject to extensive criticism," he said.

Mr Honohan said that "prompt, transparent over-capitalisation" should be the preferred option for dealing with failing banks that it is deemed necessary to save, he said.