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Honohan Says Steps on Senior Anglo Irish Bonds ‘Risky’

Irish Central Bank Governor Patrick Honohan said it would be “highly risky” to take action against senior bondholders at Anglo Irish Bank Corp., such as buying back debt at a lower price.

“To take any aggressive action would be highly risky,” Honohan, who is also a member of the European Central Bank’s governing council, said at an event in Philadelphia today. The government “is not minded to do that,” he said.

Ireland’s head of financial regulation, Matthew Elderfield, said on Oct. 6 the government could enter a “liquidity management exercise” with senior bondholders of Anglo Irish. Finance Minister Brian Lenihan said a day later the government has “no intention” of imposing losses on those bondholders through legislative measures.

Honohan said dealing with senior bondholders is “complicated” because under Irish law, they “stand equally with depositors.”

He also said things went “in a bad direction” for Ireland and “we’re now turning this around and coming out of it.” Still, Ireland has the highest budget deficit of any euro-area nation and the government doesn’t face any easy decisions in its 2011 budget, Honohan said.

The government will have to replace the revenue lost in the recession and the housing slump with “income tax, value-added tax and so forth,” he said. “It has to be done.”

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