Ireland battles to ease banking bailout terms

14th March 2011, Comments 0 comments

Ireland urged eurozone partners Monday to give Dublin more time and leeway under its banking bailout, a demand resisted by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

Finance Minister Michael Noonan warned that contingency funds in a bailout Ireland received in December are now certain to be tapped.

Noonan sought "a longer deleveraging period" to make the Irish banking sector smaller during meetings with European Union economic and monetary affairs commissioner Olli Rehn, European Central Bank chief Jean-Claude Trichet and Eurogroup head Jean-Claude Juncker.

A diplomat who sat in on a eurozone summit on Friday told AFP that Merkel, Sarkozy and Dutch Prime Minister Mark Rutte made clear to Irish Prime Minister Enda Kenny that it would be impossible to explain to voters a re-negotiation of Ireland's bailout terms after just four months.

Having suffered one embarrassing ballot-box reverse, Merkel faces further regional elections in coming months while Sarkozy trails in polls for next year's presidential vote.

Rehn said he did "not share" Noonan's views. Juncker simply acknowledged a meeting took place. There was no comment from Trichet, although Noonan said a delegation from the ECB would land in Dublin on Wednesday.

Rocked by bank failures, a property market meltdown and recession-ravaged tax revenues, Ireland's last government unveiled an austerity programme to save 15 billion euros by 2014 as part of a 67.5-billion-euro rescue deal with the EU and the International Monetary Fund.

Under the bailout, 10 billion euros was to be pumped into the Irish banking sector, with another 25 billion euros set aside for contingency support.

Noonan said stress tests on the banks meant Dublin would not have "hard figures" until after a March 24-25 EU summit aimed at delivering a lasting response to the eurozone's sovereign debt crisis.

He warned that the amount required to fix the banks "will exceed" the 10 billion euros.

Eurozone leaders refused Friday to reduce the interest Ireland must pay on its bailout unless Dublin budges on its business taxation level, one of the bloc's lowest at 12.5 percent.

The diplomatic source said Kenny argued during the summit that tackling sovereign and banking debt at the same time was unmanageable and that certain elements "should therefore be changed."

France, Germany and the Netherlands replied that "the programme was only agreed four months ago and it will be difficult to explain (to voters that) it is not sustainable," the diplomatic source said.

Kenny said he was open "to doing things, even new things," the source said, but he would not alter Ireland's corporate tax rate, which led to a "vigorous" clash with Sarkozy.

In marked contrast, eurozone leaders agreed to cut the interest rate charged on May's Greek debt rescue package to 4.2 percent from 5.2 percent and extended its repayment period to seven-and-a-half years from three.

Noonan said the Irish government was drawing up a plan for bringing the debt-to-deposit ratio in Irish banks down to 122.5, but that it would take longer than imagined for the banks to wind down their bad debt burden.

"Too soon to get into specifics" as regards a timeframe, Noonan said neither the existing, 440-billion-euro European Financial Stability Facility nor the post-2013, 500-billion-euro European Stability Mechanism have the "policy tools we feel would be helpful."

Eurozone leaders agreed Friday to allow the rescue funds to buy sovereign bonds from countries struggling to raise finance on open markets but this could only happen within a straitjacket of negotiated bailout terms.

The diplomatic source said leaders initially agreed to go "much further."

The source said "Trichet wanted it to extend to the secondary market," where the ECB buys bonds at a discount from private holders -- helping them out of a losing investment -- but Merkel and Rutte "said that was unacceptable."

© 2011 AFP

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