ECB's Constancio Says Ireland Could Use Fund for Bank System
Ireland Could Use Fund For Banks
Aidan Crawley/Bloomberg
Ireland would be able to tap the European Union’s rescue fund to bail out its banks.
Ireland would be able to tap the European Union’s rescue fund to bail out its banks. Photographer: Aidan Crawley/Bloomberg
Nov. 15 (Bloomberg) -- Jeffrey Sachs, a professor at Columbia University, discusses Ireland's debt woes and Europe's sovereign-debt crisis. Sachs, speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," also discusses the U.S. economy. (Source: Bloomberg)
Nov. 15 (Bloomberg) -- Antonio Garcia Pascual, chief southern European economist at Barclays Capital, discusses Ireland's financial crisis. Ireland is facing pressure to accept a bailout to help reverse a bond selloff among the euro-region's deficit-laden nations. Pascual speaks from London with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
ECB Vice President Vitor Constancio
Mario Proenca/Bloomberg
European Central Bank Vice President Vitor Constancio.
European Central Bank Vice President Vitor Constancio. Photographer: Mario Proenca/Bloomberg
European Central Bank Vice President Vitor Constancio said Ireland would be able to tap the European Union’s rescue fund to bail out its banks as pressure mounts on the country to stop its crisis infecting the rest of the region.
“The problems of the Irish banking sector are not only problems of liquidity but also in some cases problems of capital,” Constancio said at an event in Vienna today. “For that purpose of course the European Financial Stability Facility would be adequate. According to the regulations of that facility, it cannot lend directly to banks. The facility lends to governments, but then the government of course may use the money for that purpose.”
Irish bonds rose after the comments as European leaders push the government to accept a bailout and help it draw a line under its financial crisis. While Ireland says it doesn’t need to raise money until mid-2011, its banks, weakened by a property-market collapse, have grown increasingly reliant on the ECB for funding. The finance ministry said late yesterday that officials are in talks with their EU counterparts.
The premium that investors demand to hold Irish 10-year bonds over the benchmark German bonds fell to 548 basis points today compared with a record 652 on Nov. 11.
Ireland’s Finance Minister Brian Lenihan may ask European counterparts at a meeting in Brussels tomorrow to consider allowing the nation’s banks tap the EU’s emergency fund, the Irish Independent newspaper said today, without citing anyone. A request for aid may total about 80 billion euros ($110 billion) between 2011 and 2013, according to Barclays Capital.
External Help
Allaying investor concerns about Irish finances would help advance Chancellor Angela Merkel’s plan to require investors to help pay for future rescues, a German government official said.
EU leaders remain divided on Merkel’s proposal, the timing of a bailout for Ireland and whether the ECB should keep buying bonds of debt-laden countries. ECB official Miguel Angel Fernandez Ordonez said today that market conditions have been hurt by Ireland’s refusal to make a “final decision” on how to fix its crisis.
Ireland’s woes are the latest stage of a European sovereign debt crisis sparked by Greece last year. Constancio also said today that Greece, bailed out by the EU and the International Monetary Fund, may have to introduce additional measures to meet its budget targets for next year. Earlier, the EU’s statistics office revised Greece’s 2009 budget shortfall to 15.4 percent of gross domestic product from 13.6 percent, surpassing Ireland’s 14.4 percent shortfall.
The ECB is one of the pivotal players in any bailout of a euro region country along with the European Commission and, potentially, the IMF. Constancio said that it’s up to the Irish government to file a request for external help.
“The financing needs are not only related to the government because there the state is financed until 2011, but it’s also the problem of the banks that of course are at the centre of the problems in Ireland,” he said. “Those are considerations that have to be pondered.”
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net; Boris Groendahl in Vienna on bgroendahl@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
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