Noonan seeks clarity on Spain

Fri, Sep 14, 2012, 01:00

Minister for Finance Michael Noonan said he was seeking clarity from Spain over the next phase of its bailout, an initiative which will have a crucial bearing on his own campaign for debt relief.

As the October "deadline" for a deal on Ireland's banking debt recedes, Mr Noonan said his claim for a review of the rescue scheme was contingent on events elsewhere.

Arriving for day-long talks in Nicosia with his euro zone counterparts, he declined to say when a agreement might be reached but insisted other governments remain committed to rework Ireland's bank bailout.

The direct recapitalisation of the surviving Irish banks by the ESM fund depends on the arrangements made for Spain, which is reluctant to seek a full sovereign bailout from Europe and the International Monetary Fund.

Madrid secured an EU deal for its banks during the summer but it is now under pressure from the European authorities to seek more rescue aid.

EU leaders agreed in June allow the ESM to rescue Spanish banks and pledged to provide equal treatment to Ireland.

However, Spain wanted the European Central Bank to buy sovereign bonds before any it made any application for more aid. While the ECB moved last Thursday week, Spain is still resisting.

Asked what he wanted to hear from the Spanish government at the Nicosia talks, Mr Noonan said he was seeking clarity. "I'd like them to set out their position because it hasn't been clear over the summer what their position is," he told reporters.

He said many aspects of Ireland claim for bank relief were contingent on progress elsewhere, and "especially in Spain".

The euro zone ministers resolved two months to push for a deal for Ireland in October but the latest indications suggest a breakthrough is not imminent.

While the proposed restructuring of the Anglo Irish Bank promissory note requires the agreement of the European Central Bank, this is not yet forthcoming.

The minister argued, however, that he was still making headway. "I've spoken to the French, German and Italian colleagues and they have an understanding of the position," he told reporters.

"Of course in the first instance the troika must finalise their work and it's after that we'll be actively recruiting political support behind whatever the outcome there is."

He added: "We have technical talks and in parallel now we have political lobbying so the two are going hand in hand. I'm not prepared to put a timeframe on it because it's not an independent exercise by Ireland."

Mr Noonan said all his colleagues shared the commitment to agreement in June to review Ireland's bank debt.

"It's the working out the ways and means of implementation that are in question now and it's too soon to put a timeframe on it," he said.

"Certainly any arrangement which would have the direct recapitalisation of Spanish banks and applying that formula to Ireland is contingent on progress being made on Spain."

While any Irish deal involving the ESM would require the ministers' endorsement, a reworking of the Anglo notes could be settled with the ECB directly.

"It would be possible if the central bank were willing to almost arrange that on a bilateral basis and have it endorsed by colleagues subsequently, whereas anything along the lines of the Spanish intent of having the banks recapitalised would be a plenary decision."

Mr Noonan was not prepared to put a timeframe on any agreement with the ECB and said it was not the case that an overall bank deal would be "staggered", with one element proceeding ahead of the other.

"I'll have a series of bilateral meetings and I'll continue to brief colleagues across Europe and when the general review of programmes is being undertaken I'll get an opportunity to speak to the euro group about the position in Ireland and I will include references to the Irish and explain what we have in mind."

Later the International Monetary Fund and the European Commission backed Ireland's calls to lighten the cost of its bank bailout, a move they hope will bolster the island's borrowing prospects and help wean it off international support.

Christine Lagarde, managing director of the International Monetary Fund, and Olli Rehn, the European Commissioner in charge of economic affairs, gave tacit backing for Dublin's debt demands.

With the possibility of Spain requiring euro zone aid, a likely request for assistance from Cyprus and uncertainty hanging over Greece's future, the euro zone wants to deliver proof that its crisis management has worked - at least in the case of Ireland.

"Ireland is being exemplary in delivering on the implementation of its programme," Ms Lagarde told journalists, saying the question of easing Ireland's debt burden was "important".

Mr Rehn said that investors' growing confidence in Ireland was down to expectations of a change to its support programme.

"This improved sentiment is in part due to the commitment made by the euro area to find a solution to improve sustainability of the ... Irish programme," he said. "The quality of the end result is more important than the schedule."

However, the ECB, worried that a move to lighten Ireland's debt burden would set a dangerous precedent, has signalled in the past that it would not accept slippage in the repayment schedule.

Today, Joerg Asmussen, a member of the bank's executive board that forms the nucleus of its policymaking, said that ECB, IMF and European Commission staff were in intense discussions with Irish officials to seek ways of enhancing the programme.

"The talks are ongoing," he said. "We are under heavy time pressure."

Additional reporting Reuters

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