EUROPEAN COUNCIL president Herman van Rompuy yesterday gave support for a reduction in the interest rate on Ireland’s EU bailout funds, but warned Ireland against acting unilaterally to inflict losses on senior bondholders in Anglo Irish Bank without first consulting its international partners.
Mr van Rompuy, on his first visit to Ireland since his appointment in late 2009, stressed the importance of reaching a deal on the interest rate.
“Im fully aware this is a sensitive issue for Ireland. We continue to work with our partners to find a solution,” he said at a press conference with Taoiseach Enda Kenny at Government Buildings.
Mr Kenny said negotiations were continuing on a reduction of Ireland’s interest rate, including discussions with “our French colleagues”. France has sought an increase in Ireland’s corporation tax rate in return for an interest rate cut.
While ruling out unilateral action on senior bondholders Mr van Rompuy did not, however, rule out “burning” unsecured bondholders at Anglo Irish and Irish Nationwide, as proposed by Minister for Finance Michael Noonan this week.
Mr Kenny said the Government was conscious it could not take unilateral action to burn Anglo bondholders, and said discussions on the matter would take place in the autumn with the European Central Bank .
Mr Noonan will travel to Brussels tomorrow for a two-day meeting of euro area ministers and International Monetary Fund officials.
Ireland’s EU-IMF bailout is one issue on the agenda.
Also on the agenda will be the terms of a second bailout for Greece. Prospects of reaching agreement on the issue improved yesterday when France and Germany narrowed their differences at a meeting in Berlin.
The euro area crisis calmed slightly yesterday following a joint statement by Germany and France that holders of Greek government bonds would not be forced to take losses.
Germany yesterday rowed back on earlier demands that private bondholders face involuntary changes to the terms of their loans to the crisis-wracked Greek state, a de facto default.
“We want involvement of the private sector on a voluntary basis – and I want to stress this,” chancellor Angela Merkel told reporters.
French president Nicolas Sarkozy, who she was meeting, described yesterday’s agreement in Berlin as a “breakthrough”.
The statement comes as a victory for the ECB, which has strongly opposed any form of default for fear it could lead to panic on financial markets, cutting off more countries from private funding.
The euro crisis reached new heights on Thursday as bond yields of weaker countries, including Ireland, Spain, Portugal and Greece, soared to new peaks. High yields reflect investors fears of not being repaid.
By the close of markets yesterday, yields on weak euro area government bonds had fallen back slightly and the euro recovered some of the ground it had lost to the dollar.
This was a result of both the Franco-German statement and a lessening of political instability in Greece.
The risk of the Athens government collapsing receded yesterday when a reshuffled cabinet was announced, including a new finance minister, Evangelos Venizelos.
Separately, Joaquin Almunia, European commissioner for competition, visited Dublin yesterday.
He repeated criticisms of Ireland's bank guarantee of September 2008 that he had made to The Irish Timesin Brussels earlier in the week, and claimed that it was the trigger for EU-level emergency measures in the following days.
Speaking at an Irish Banking Federation lunch, Mr Almunia was harsh in his criticism of Irish banks.
He also noted that Ireland’s bank bailout has been by far the most expensive in the EU, costing more than five times that of the next costliest rescue in the Netherlands.
