Ireland needs to share its banking debt with the European Union as the country can’t continue to support it alone, said Goodbody Stockbrokers today.
The government should discuss restructuring 21.5 billion euros ($29.3 billion) in unsecured senior bonds at a European level, Goodbody economists Dermot O’Leary and Juliet Tennent said in a note to clients. Another option would be to allow the European Union’s rescue fund, the European Financial Stability Facility, to directly recapitalize Irish banks, they said.
“If the Irish banks are systemic to the European banking sector, then collective responsibility must be taken for sorting the problems,” Goodbody said in the report. “It is in Europe’s interests, as well as Ireland’s, that the problem is solved.”
The longer bank debt remains the sole responsibility of the Irish government the more likely it is that the sovereign debt will need to be restructured, according to O’Leary and Tennent. Irish Finance Minister Brian Lenihan said yesterday the government is pressing for a “substantial discount” on 20 billion euros of unsecured senior bank bonds, a push resisted by the European Central Bank.
The Irish government raised the issue of burden sharing for unsecured bondholders with the EU during negotiations for its 85 billion-euro rescue package in November, only to rebuffed by the ECB, Lenihan said yesterday.
ECB President Jean-Claude Trichet said yesterday that Ireland needs to press ahead with its fiscal austerity measures and imposing “haircuts” on investors isn’t part of the plan.
Ireland shouldn’t unilaterally restructure senior bank debt as funding for the sovereign and companies could be “hampered for years to come,” according to Goodbody.