The Government believes its campaign to return to private debt markets will be strengthened by the new euro zone rescue package, a plan that will see much of Greece’s national debt cut in half.
The Government’s position was supported by the International Monetary Fund, whose chief economist said the State should be able to resume borrowing at a relatively low cost as early as 2012 or in 2013.
“The credibility is there, Ireland is very different from the other periphery countries,” Olivier Blanchard said in Dublin last night. “I am fairly confident that, with the path you are , in late 2012, first semester 2013, you should be able to go back there with relatively small spreads.”
The rescue package for the euro zone was agreed early yesterday morning after the EU authorities presented an ultimatum to the global banking groups who hold Greek debt. Summoned to meet Europe’s most powerful leaders during an adjournment to a crucial euro zone summit, they were told they had no choice but to accept a “voluntary” 50 per cent loss on their holdings of Greek bonds.
The message was delivered at a 10-minute meeting by German chancellor Angela Merkel, French president Nicolas Sarkozy, European Council president Herman van Rompuy and IMF chief Christine Lagarde. They made a “best and final offer” to the Institute of International Finance, which represents the world’s biggest banks, and said there was no further scope for talks. The institute’s chief, Charles Dallara, took two hours to deliver its acceptance of the deal.
“It was not a negotiation,” said a high-level diplomatic source. “The financial sector has no interest at all in a major clash and a major crisis.”
Although EU leaders insist that the debt reduction plan is purely voluntary for Greece, Mr Dallara said in Brussels that the participation of banks is likely to be “very, very high”.
The new rescue package was welcomed last night by US president Barack Obama, who has repeatedly pressed EU leaders to escalate the battle against the debt crisis. The plan was “a critical foundation” to assert control over the crisis, he said.
Although many detailed elements remain to be hammered out by finance ministers, the agreement by euro leaders helped send European shares to their highest close in 12 weeks. Bank shares soared.
The Government has been distancing itself from the Greek deal, saying the arrangements are unique to that country because its debt is unsustainable. Dublin argues that Ireland’s national debt is sustainable and that the State’s interests lie in fully working the EU-IMF bailout programme, with a view to regaining access to private debt markets.
After Taoiseach Enda Kenny said the latest euro zone plan would create a “much-improved” environment and stability in the single currency area, Minister for Finance Michael Noonan said the deal removed the threat of recession and would help the Republic emerge from its difficulties through export-led growth.
He said for timing reasons Ireland had carried a disproportionate amount of the protection of the euro banking system. “We want to reduce the burden of the debt,” he said.
Mr Noonan said arrangements for Greece did not represent a “good deal” for that country – the new measures would see Greece stuck in a bailout programme until 2027 in a worst-case scenario. “Could you imagine any of us in politics going to the Irish people and saying, stick with it lads, we’ve another 16 years of this?”
Saying Ireland should be back in private debt markets by the second half of 2013, Mr Noonan said he did not countenance a scheme such as the Greek one for the Republic.
However, Opposition parties questioned why Greece would benefit from a write-down while Ireland would shoulder the full cost of its debts. Both Fianna Fáil and Sinn Féin criticised the Government.
“From an Irish perspective, it is noteworthy that the Government did not seek any reduction whatsoever in the Irish debt burden and has committed itself to paying its debts in full,” said Fianna Fáil finance spokesman Michael McGrath.
