ANALYSIS:THE HORSE may have bolted but at least the Government can use the softening in the European Central Bank's position towards burning senior bondholders to point the value that the horse could have saved the Irish public.

The change in policy from ECB president Mario Draghi at last week’s meeting of European finance ministers means Frankfurt may consider the limited burning of senior bondholders.

Such a move had been categorically ruled out by the ECB prior to Ireland’s EU-IMF bailout plan and during the 19 months since it was agreed when it came to burning senior bondholders at Anglo Irish Bank and Irish Nationwide.

Now, to ease the burden of Spain’s banks, Draghi has shifted policy from that of his predecessor Jean-Claude Trichet, saying that he may be open to the idea but only for small, failed Spanish banks.

Despite the major departure, the idea was reportedly dismissed by the finance ministers last week for the same reason that Ireland’s pleas were rejected – it could lead to funding issues for other banks.

The ECB appeared to clarify Draghi’s remarks yesterday, saying that senior bondholders can be forced to bear losses in the liquidation of failed banking entities.

The timing is poor for Ireland given that the State has pumped €64 billion into the Irish banks and the last significant sums of senior unsecured debt at the failed Anglo Irish Bank and Irish Nationwide Building Society have been repaid in full to the bondholders.

If the ECB had changed its position prior to the bank stress tests last year the Government could have had €4 billion of debt to play with in write-down negotiations.

An earlier bigger change could have led to senior bondholders being burned at the viable or live banks – Bank of Ireland, AIB and Permanent TSB – and shaved something off the €67 billion that was repaid to them between September 2008 to April 2012.

The ECB’s U-turn could still strengthen the Government’s hand in talks about easing the burden of the bank bailout costs.

“If such a policy were to be used in Spain, Ireland could certainly argue the case for further European support,” economist Dermot O’Leary at Goodbody Stockbrokers said in a research note yesterday. “It is a very big ‘if’ though.”