Kenny sets stage to back away from bond demand
EU-IMF BAILOUT: INCOMING TAOISEACH Enda Kenny has set the stage to pull back from his demand for “haircuts” on senior bank debt, saying other ways must be found to cut the cost of Ireland’s bank bailout if losses were not imposed on bondholders.
While Mr Kenny said he had encountered a great deal of goodwill towards Ireland at a meeting of centre-right EU leaders, German chancellor Angela Merkel adopted a hard line on his demand for better bailout terms.
Countries which seek relief would have to concede “further commitments” and “further conditionality”, Dr Merkel said.
While she has targeted Ireland’s corporation tax regime in recent days, Mr Kenny said he was not prepared to contemplate increasing the tax rate or to agree with harmonised European rules on the calculation of such taxes.
Citing resistance among Ireland’s European partners to burden-sharing with senior bond investors, Mr Kenny said he was discussing with EU leaders a number of options for “adjustment and greater flexibility” in the cost of the bank rescue.
His remarks are understood to reflect anxiety in Dublin and other European capitals that an ongoing round of bank stress tests may suggest a €25 billion contingency fund included in the EU-IMF bailout deal is too small to deal with a new wave of anticipated losses.
Mr Kenny was speaking in Helsinki on the margins of an informal summit of leaders attached to the European People’s Party, Fine Gael’s group in the European Parliament. While the prime agenda item was reform of the euro zone bailout fund, Mr Kenny said the meeting provided an opportunity to explain the scale of Ireland’s difficulties.
“I’ve pointed out to them that the Irish electorate actually want to know what the scale of the truth and reality is of the scale of our difficulties, so that we can set about a clear path and a strategy to actually deal with that,” he said.
On burden-sharing with senior bond investors, he said: “There were strong comments that that wouldn’t be a runner.”
High-level European sources said moves to impose losses on senior bank debt would bring relatively small financial benefit, threaten “contagion” in financial markets and damage Ireland’s international credibility.
EU Commission president José Manuel Barroso, who met Mr Kenny in Helsinki, said the best way to put the Irish economy back on track “is to increase confidence and not to decrease confidence”.
The senior bond question was “not closed off”, Mr Kenny said. “The point I’m making is, while it was certainly a serious issue in the election campaign in Ireland, that if that is not to be a focus of action then there has to be another measure of flexibility shown,” he said.
He continued: “What we are looking for here is a reduction in the cost of the package and that’s in the two priorities we identified: the interest rate and the cost of the banking element of it.”
While Mr Kenny has long made it clear he wants the interest rate on Ireland’s bailout loans lowered, he said longer maturity on bailout loans was another way of easing the rescue terms.
“Our overall requirement is that there be a reduction in the cost of the package to make it work . . . Ireland wants to pay its way and Ireland wants to play its part but it can only do so in a programme that is sustainable, that allows for Ireland to pay its way and at same time grow our economy, create jobs and bring about recovery and the current situation is not going to allow that to happen.”
He continued: “We are in a very challenging programme. Welfare has been cut, unemployment has risen, taxes have been increased and this is challenging for our people.”