Pressure eased on Athens's repayments could be positive for Dublin, writes ARTHUR BEESLEYin Brussels
AN OUTLINE agreement by French financial institutions to roll over their holdings of Greek debt for up to 30 years marks a fresh attempt to get ahead of the crisis by bailing in private creditors to the rescue effort.
Although many hurdles still remain to be jumped, the French scheme may serve as a template for private creditors of Greece in other euro zone countries like Germany. Meanwhile, talks at the International Institute of Finance in Rome represent an effort to secure the involvement of non-euro zone banks via their global lobby group.
From an Irish standpoint, these initiatives are important for two reasons.
First, they stand as a serious attempt to ease some of the immediate burden of Greece’s vast public debt. If it proceeds it would offer a little breathing room to the beleaguered Greek government as it tries to proceed with difficult reforms under its EU-IMF programme.
Crucial for success are positive votes in favour of a €78 billion austerity and privatisation plan, without which countries such as Germany and Finland will not back a second Greek bailout. Indeed, German support for a second rescue plan rests on the involvement of private creditors.
The net point here is that the plan unveiled by French president Nicolas Sarkozy has potential to ease some of the pressure on Greece. The country must still repay all its loans, but it will have longer to do so. The load would be a little lighter.
If all else goes well – always a big if in the Greek situation – the plan may improve the prospects of the rescue effort succeeding and lessen the threat of default. That could well have some positive implications for Dublin, as notional Irish borrowing costs have spiked to new records as a result of spill-over pressure from the Greeks.
Second, the French initiative may set a precedent for voluntary private sector involvement in any new rescue plans agreed before the euro zone’s permanent bailout fund – the European Stability Mechanism – comes into force in mid-2013.
The Government, which is desperately trying to distance itself from Greece, insists it will have no need for any additional rescue aid. But in spite of its best efforts to fix the banks and the public finances, the problem remains that a return to private debt markets is impossible right now. If that pressure persists into the second half of next year and beyond with no prospect of regaining investor confidence, then alternative measures would be required.
Although moves akin to the French initiative may then come into play, any request for additional aid would be fraught with political, financial and reputational risk for Ireland.
This helps explain the Government’s determination to work the plan as agreed, albeit with moves on the side to tackle unguaranteed, unsecured senior bondholders in Anglo Irish Bank. Dublin’s greater interest lies in fully executing the agreed plan – challenging as it is – in the hope that the economy turns the corner.
There is a further point, however. While EU leaders have already resolved that private creditor participation will be a prerequisite in any European Stability Mechanism rescue, the Paris plan may bring forward their involvement by two years.
This initiative is strictly voluntary. Still, investors may find such a plan more palatable than a more severe form of restructuring within the European Stability Mechanism.
As such, they may come to regard the Paris framework as something to replicate with another bailout recipient to avert the threat of a more radical restructuring over the horizon.
All of this will be played out in the months to come. Sarkozy believes he has defied critics who said a voluntary endeavour to recruit private investors would be worthless. Execution, however, will be difficult.