Noonan seeks cut in cost of bank rescue

 

Minister for Finance Michael Noonan met  EU economics commissioner Olli Rehn today to press the Government’s case to ease the cost of the €63 billion bank rescue package.

He met European Central Bank chief Mario Draghi in Frankfurt this afternoon.

Mr Noonan said after the two meetings that it was too soon to say whether he was making progress in his campaign.

“It’s a question of laying out our difficulty as we see it and having non-binding discussions on possible approaches to a resolution,” he said as he left the ECB headquarters in Frankfurt.

He was coy about his meeting with Mr Rehn earlier today.

“There’s no progress that I’m reporting because it was a confidential meeting but we had a discussion and you know the agenda,” he said. “We also reviewed the Irish programme. The troika had been in Dublin as you know but Mr Rehn hadn’t accompanied them so we had some reflections on that.”

He saw the meetings as being part of a process “and we’ll move it on to the political side in the next couple of weeks.” However, this was a medium-term strategy.

Central Bank governor Patrick Honohan  also attended the meeting in Frankfurt. The talks come as euro zone finance ministers intensify pressure on Greece and its private creditors to quickly reach a deal on a €100 billion bondholder contribution to the country’s second EU-IMF bailout.

In a sign of concern in the global community about the risks linked to the restructuring of the Greek national debt, IMF chief Christine Lagarde called on EU leaders to boost their bailout fund to prevent contagion spreading to Italy and Spain.

Germany has been resisting such pressure but Ms Lagarde told an audience in Berlin that a “substantial” increase to the resources of the the stability facility and its permanent successor, the European Stability Mechanism, was urgently required.

“We must all understand that this is a defining moment. It is not about saving any one country or region. It is about saving the world from a downward economic spiral,” she said.

The prime issue in Mr Noonan’s talks with Mr Draghi and Mr Rehn is the Government’s drive to lessen the cost of the €30 billion recapitalisation of the former Anglo Irish Bank.

State support for the bank is being financed with expensive promissory notes which carry a comparatively high interest rate of some 8.6 per cent. This is considerably in excess of the prevailing rates for stability facility loans, leading the Government to explore whether it is feasible to draw down additional stability fund aid to replace the promissory note scheme.

One option raised in recent talks is the issuance of new stability facility bonds to the State for the purposes of recapitalising the bank, it is understood.

While euro zone officials believe the stability facility may be the only alternative source of funding open at the moment, the scope and scale of the initiative mooted by the Government remains unclear.

The talks are highly technical and politically sensitive, as any additional aid would not be available without the support of Ireland’s EU partners.

The Government has been keen to stress that it is committed to meeting all of its obligations to each of the banks in full.

However, there is some concern in Europe that any move to increase stability facility support to Ireland might be wrongly received as an unhelpful signal of distress at a time when the Irish bailout is deemed to be doing well.

Further anxiety surrounds a possible drawdown of additional aid from the stability facility at a time when its resources are already strained by the turmoil in the euro zone.

Arriving in Brussels yesterday for a two-day meeting of euro zone finance ministers, Mr Noonan declined to quantify the benefit that might accrue to the State.

Mr Noonan downplayed the prospect of any imminent breakthrough, saying this was a “medium-term” initiative. However, he saw moves by the troika to align the position of its members as a clear sign of progress.

“The significant advance is: if the European authorities and the IMF develop a common paper and that’s the work that’s under way at present then that paper will no longer have the status of an Irish request,” he said.