Ireland will not benefit directly from any European move to allow burden sharing among senior bondholders because the State has repaid bondholders in troubled banks, Minister for Finance Michael Noonan has said.
The European Central Bank’s “extraordinary” shift of policy on burning senior bondholders were to form part of the discussions between Mr Noonan and bank president Mario Draghi in Frankfurt today.
Mr Draghi's stance is that if European discussions on senior bank bondholders evolves "towards a definite change in position, that it will be reflected in the Irish programme," Mr Noonan told reporters in Frankfurt today after both men met.
"But our position is that if there is a change in policy as the position evolves, that change will be reflected in the Irish programme in some other way," Mr Noonan said.
Mr Draghi said the question of senior bondholders sharing the burden of ailing banks was "evolving" in Europe and he expected developments to be reflected in Ireland's bailout programme. He acknowledged the "successful implementation" of the State's programme in the meeting with Mr Noonan, the ECB said in a statement.
Mr Draghi had told a meeting of EU finance ministers last week that the ECB would not insist that no losses be forced on senior bondholders of Spain’s worst-affected banks, the Wall Street Journal reported yesterday.
This represented a substantial policy change for the ECB which had consistently refused the request of successive governments in Ireland to compel senior creditors to bear some of the losses.
Mr Draghi’s proposal for the Spanish banks was reportedly rejected by finance ministers amid concerns over market reaction.
There has been no official confirmation of the policy change from the ECB, from the head of the eurogroup, Luxembourg prime minister Jean Claude Juncker, or from other member states, including Ireland.
However, EU officials and Government sources have confirmed that such a change was mooted.
Mr Noonan’s spokesman said Mr Juncker was the only person authorised to speak on behalf of the eurogroup.
Sources also downplayed the practical significance of it for Ireland, saying that all but €160 million of senior debt in the former Anglo Irish Bank and Irish Nationwide had already been paid.
The development will form part of today’s discussions in Frankfurt aimed at reducing the €64 billion cost to the Sovereign of the banking collapse. Sources said it might give extra “leverage” to Mr Noonan’s case for a substantial reduction to be applied retrospectively.
“This is [a] meeting about the ongoing discussion on long-term sustainability of [the] Irish financial system, which follows on from the January meeting and the outcome of the recent EU summit,” the spokesman said.
Taoiseach Enda Kenny said he believed the discussions in Frankfurt would be in general about the euro zone, and about Ireland and the willingness of our colleagues in Europe to help us get out of the bailout programme.
“That’s epitomised by a very strong statement from Commissioner [Olli] Rehn who wants this by October, from Commissioner Michel Barnier and indeed from Mr Draghi himself together with a number of other political leaders," Mr Kenny told reporters.
“I think Europe has certainly realised that this country is serious about dealing with our public financial problems here and while they’re challenging for our people they want to assist us to get out of this programme as quickly as we can.
“So in the context of the outcome of the discussion of the Eurogroup meeting there were differences of opinion and clearly the ECB are talking to Spain.
"Irrespective of the outcome what we want is the maximum benefit for our country in whatever form from the discussions that will take place between Mr Noonan, Mr Draghi and eventually at the Eurogroup meeting.
“So it’s part of the reason for his visit today. I’m sure this will come up central to the discussions that they have."
A change in the ECB position last year could have allowed the Government to negotiate a writedown of debt with senior unsecured unguaranteed bondholders at Anglo Irish Bank and Irish Nationwide holding almost €4 billion of debt and €16 billion across all Irish lenders at about the time of last year’s bank stress tests.
Market reaction to the story was muted, as investors shrugged off the rumours.
Additional reporting: Bloomberg