Troika warns of financial 'bomb' going off in Dublin

 

THE TROIKA overseeing Ireland’s bailout warned the Government that a financial “bomb” would go off in Dublin if it defaulted on payments to bondholders of the former Anglo Irish Bank, according to Minister for Transport Leo Varadkar.

Mr Varadkar claimed a failure to pay back €1.25 billion due to the bank’s bondholders this week would lead to higher borrowing costs for banks and semi-State companies.

For ordinary people this would mean higher electricity and gas bills, and people with variable mortgages would have to pay more, he told RTÉ’s The Week in Politics.

Asked why the bonds were being repaid, the Minister said: “They are being repaid because the Government had to weigh up the costs on the one side and the risks on the other.”

Mr Varadkar said there was about €2.5 billion left in Anglo bonds to be repaid, and not paying the €1.2 billion due this week would have no immediate gain for the State.

The gain might only come in eight or nine years when Anglo was resolved.

There were, however, potential “serious costs” associated with not paying the money. “This is a State company and if we defaulted it would have implications for other State companies like ESB and Bord Gáis.”

Asked how the ECB warned against a default, he stressed he was not directly involved in talks.

“But what the ECB has said to us, and what the troika has said to us – it’s on your head. We don’t want you to default on these payments, it is your decision ultimately. But a bomb will go off, a bomb will go off in Dublin, not in Frankfurt, because of the reasons I’ve outlined.”

The Minister added a default would put the Government in conflict with the ECB and other member states at the very time it was trying to renegotiate a deal on the “bigger prize” of the €30 billion due to be paid on the separate Anglo promissory notes.