Minister for Finance Michael Noonan began his week-long European odyssey to seek support for Ireland's plan to refinance its International Monetary Fund loans with a visit to EU commissioner Jyrki Katainen in the European Commission headquarters in Brussels yesterday.
The half-hour meeting with the former Finnish prime minister, who has temporarily taken over Olli Rehn's portfolio before the next EU economics commissioner is appointed, comes ahead of meetings with European Stability Mechanism head Klaus Regling in Luxembourg today, Eurogroup president Jeroen Dijsselbloem in The Hague and European Central Bank president Mario Draghi in Frankfurt.
Speaking after the meeting, Mr Noonan appeared quietly confident, pointing out he had known Mr Katainen well as a former finance minister and member of the European People’s Party.
Hardline opponents
What he did not say was Mr Katainen, along with his Dutch and German counterparts, has consistently been one of the most hardline opponents of Ireland’s claim for further debt relief. The three countries issued a joint statement almost exactly two years ago, explicitly refuting the assumption in the deal of June 2012 that the commitment to break the link between banking and sovereign debt would apply retroactively.
Thankfully, Ireland’s EU partners appear more enthusiastic about the nascent plan to repay the IMF bailout loans.
In Brussels, the mood music is good, with senior EU sources indicating broad agreement for the plan when it was discussed by the Eurogroup last week. However, agreement on the IMF deal is virtually certain to lessen the case for retroactive direct bank recapitalisation from the ESM fund, as the IMF deal is likely to be perceived as another concession to Ireland following the reduction in the bailout loan interest rates, the promissory note deal and the extension of loan maturities.
In particular, the ECB is not happy. Residual concern about the monetary financing implications of last year’s promissory note deal is continuing to rankle. While in theory the ECB could refer the matter to the European Court of Justice, a compromise is likely to be reached over the next year between the Irish Central Bank and Frankfurt to accelerate the pace of sale of the long-term bonds that replaced the promissory notes.
Ireland’s plan to refinance its IMF loans is one of the main items on the agenda at this week’s Eurogroup meeting on Friday, and Ecofin meeting of all 28 finance ministers the following day, with Mr Noonan intending to speak to finance ministers. These will include the those of Denmark and Britain, who provided bilateral loans as part of the Irish bailout and must consent to the deal.
Ongoing surveillance
Already, Portugal has suggested a similar arrangement could be applied to its bailout loans, though EU officials were quick to point out the other programme countries are not enjoying the low level of rates applying to Ireland in the markets. Continued involvement of the IMF in Ireland's post-programme surveillance has also emerged as a key condition of institutional support for the deal.
Mr Noonan’s assertion yesterday the government welcomes the presence of the IMF in post-programme Ireland as a “balance” to the other troika members is revealing. It is a reminder of the sometimes difficult relationship between the IMF and the European lenders that existed during the euro debt crisis, when three very different institutions were thrown together. The sense that the IMF provided a welcome antidote to Frankfurt and Brussels was a subtext of the bailout.
The Department of Finance estimates the deal could be worth €375 million a year, though this depends on the timeline for refinancing the debt, likely to be done in tranches of €5 billion. Between €15 billion and €18 billion is expected to be repaid early.
