Ireland’s Finance Minister Brian Lenihan said the bailout of Anglo Irish Bank Corp. won’t bankrupt the country and the costs are “manageable.”
“I was a bit concerned at the suggestion a lot of public opinion believe that Anglo Irish will bankrupt the country,” the minister said in an interview with national broadcaster RTE today. “That’s simply not the case.”
Lenihan discussed Anglo Irish with European Union Antitrust Commissioner Joaquin Almunia in Brussels today. The government has injected 22.9 billion euros ($29.5 billion) into Anglo Irish since the lender’s nationalization in January 2009, and Ireland’s borrowing costs have risen in the past month on concern that the bailout costs will continue to increase.
Standard & Poor’s, which last month cut the country’s credit rating to AA-, the lowest since 1995, said Ireland may have to inject as much as 35 billion euros into Anglo Irish “over time.” The bank disputed the S&P estimate on Aug. 31, saying it may need no more than about 25 billion euros.
“We will not be distracted by those who suggest that there is some kind of quick fix where you can bust the country and magically stage a resurrection,” Lenihan said. “When I look at the view of commentators at home, I see a constant reference for the need for us to default on certain obligations. That doesn’t instill confidence abroad.”
Ireland’s worst ever recession and the use of public funds to prop up banks left the nation with a deficit of 14.3 percent of gross domestic product last year, the widest in the euro area. Real-estate prices plunged during the economic slump and forced Anglo Irish to post a loss of 8.2 billion euros in the first half of the year.
“Work is progressing” on Anglo Irish, Almunia’s spokeswoman Amelia Torres said in Brussels after the meeting with Lenihan.
The spread between Irish 10-year bonds and German bunds, Europe’s benchmark, was little changed today at 341 basis points. It has widened 104 basis points over the past month and is above the level reached on May 7 before a European Union-led rescue plan for indebted nations was announced.
The cost of insuring against default on Anglo Irish bonds for five years rose 3 basis points to 686 and 1 basis point to 338 for credit-default swaps on Irish sovereign debt, according to data provider CMA.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year and an increase signals deterioration in perceptions of credit quality.
Lenihan, who has been diagnosed with cancer of the pancreas, said his condition had stabilized for the present. His condition isn’t “a clear and present danger,” he said.
“I don’t envisage any more treatment for the rest of this year,” Lenihan said. “It has improved somewhat, but like all cancers it is still there.”