EU eases Irish return to markets

EU finance ministers have taken steps to ease Ireland’s return to private debt markets, a move which reflects concern that the turmoil in Greece is weighing on Dublin’s efforts to regain investor confidence.

The ministers have quashed plans to give a new euro zone bailout fund "preferred creditor status" if it lends to countries like Ireland, which are already the beneficiaries of EU-IMF rescue aid.

The intervention is designed to encourage private investors to support the Government when it tries to make its return to market financing next year.

Minister for Finance Michael Noonan had been concerned that the rules of the European Stability Mechanism (ESM) would lead private creditors to shun Irish debt. The ESM is a permanent rescue fund which will replace a temporary fund, from which Ireland is drawing aid, in mid-2013.

While insisting that the Government has no intention of going to the ESM, Mr Noonan believes its preferred creditor status was a big disincentive for private creditors to back countries like Ireland. This was due to an increased risk of losses if a further bailout was needed.

A source involved in the European deliberations on the issue said it was clear that the ministers were conscious of the increased risk that the escalating crisis in Greece could derail Ireland's effort to get back into the markets.

"The ESM now will have the same status as a creditor as anybody who lends to Ireland so that makes it easier for us now to get back into the market," Mr Noonan told reporters in Luxembourg.

"So if we meet the deadlines in our programme fully we should be positioned to get into the markets and there should be people prepared to lend to us who won't be inhibited by incurring the greater risk from the ESM as originally drafted."

Mr Noonan said he had raised the matter with American treasury secretary Timothy Geithner last week on his visit to the US.

"When I was in America it was coming up all the time with senior financial people in New York, they knew about it."

Separately, certain Dublin sources believe a breakthrough in Ireland's campaign for a lower interest rate is "possible" before EU leaders meet in Brussels for a summit on Thursday. However, Mr Noonan said it was not his view that success was now within the Government's grasp. He discussed the matter briefly yesterday with French minister Christine Lagarde, but Greece was the focus. "I don't think that any progress will be made today and if no progress is made today progress isn't going to be made at the summit," he said.

The change to the ESM's rules relates only to countries which are already in EU-IMF rescue plans – Ireland, Greece and Portugal – so the ESM's preferred creditor status will remain intact otherwise.

"This should make things easier for those countries. It should make it easier for them to come back to the markets," said Luxembourg's prime minister Jean-Claude Juncker, who chairs the group of euro zone finance ministers.

He praised the execution by the Irish and Portuguese governments of their aid plans. "We're entirely satisfied with the recent performance of these two countries." The move was agreed as finance ministers handed a 12-day deadline to Greece to secure parliamentary support for a swingeing new austerity plan.

Greek prime minister George Papandreou faces a confidence motion tonight in parliament, a vote which will determine whether he survives in office. Mr Papandreou proposed the motion last week as he tried to face down dissenters in his own administration who are resisting the new austerity plan.

The spending and taxation measures are the cornerstone of a new EU-IMF aid package for the country and release of a crucial €12 billion loan to the country is conditional on MPs approving them.

Concern that the package might be rejected has spooked markets, sending notional Irish borrowing costs to record levels and threatening the Government's campaign to return to the markets next year.