Ireland can’t seek to re-negotiate the terms of its rescue package until the central bank completes stress tests to determine whether the nation’s lenders need new capital, Finance Minister Michael Noonan said.
“It’s not reasonable to expect definite proposals or agreements while the stress tests are continuing,” Noonan said yesterday in Brussels after meeting with European Union officials. He would be “surprised” if the 10 billion euros ($14 billion) initially earmarked as part of the bailout to recapitalize the banks will be enough, he said.
Ireland is battling other nations over the terms of its 85 billion-euro bailout from the EU and International Monetary Fund. Prime Minister Enda Kenny has refused to buckle under pressure from Germany and France to raise the country’s corporate tax rate as he pushes for relief on the 5.8 percent interest rate the country pays on the aid loans.
Stress tests on Ireland’s banks are due by the end of the month, and EU Economic Affairs Commissioner Olli Rehn, one of the officials to meet with Noonan yesterday, said he disagreed with the Irish government’s assessment that more than 10 billion euros may be needed.
“I don’t share” that view, Rehn said. Part of “the banks’ stabilization fund is covered by the Irish themselves” through the pension system and cash reserves.
Ireland’s new government won’t inject additional funds into the country’s lenders, four of which have been taken over by the state since 2008, until the results of the capital and liquidity tests on banks are available at the end of this month. The country is able to draw on a further 25 billion euros under its November bailout agreement with the EU and the International Monetary Fund, depending on how the stress tests turn out.
“There is a certain point where a combination of the sovereign debt, which is manageable, and the bank debt put on top of it, we reach a point where the sustainability of the situation becomes doubtful,” Noonan said. “ Now we don’t want to reach that.”
Luxembourg’s Jean-Claude Juncker, who chairs meetings of euro-area finance ministers and also met with Noonan yesterday, declined to comment on his talks with the minister. European Central Bank President Jean-Claude Trichet, the third official who met with Noonan, didn’t speak to the press.
The Frankfurt-based ECB, which has lent Irish banks 96 billion euros, is pushing the lenders, including Allied Irish Banks Plc and Bank of Ireland Plc, to cut their dependence on emergency funding by disposing of assets. The banks also have received as much as 51 billion euros from the Irish central bank.
Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin, said Noonan is facing “heavy negotiations” as he pushes for a three-year deleveraging period for banks to minimize the need for asset fire sales.
“However, all eyes are now geared toward the upcoming” tests, he said.
Noonan yesterday repeated Prime Minister Enda Kenny’s refusal to raise the Irish 12.5 percent corporate-tax rate in return for a 1 percent interest-rate cut on the aid loans, saying there is “no way” Ireland will raise the levy.
His Austrian counterpart Josef Proell indicated that ministers will continue to pressure Ireland on the tax rate, saying it’s about “give and take” and if the country “wants concessions, it has to do something for it.”
“We need to maintain investment, growth and exports,” Noonan said. “We’re not going to cut off the hand that feeds us. That’s out as far as we’re concerned.”
Italian Finance Minister Giulio Tremonti said Ireland “has huge difficulties at the moment, has asked for help and I think it’s wise to have some relative tolerance.”
“They rely on multinationals which are based there because of the tax rate,” he told reporters in Brussels. “To take this piece of Irish economy away in one blow would not benefit neither them nor us.”