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Kenny Sees No Irish Losses as Noonan Opens ‘Pandora’s Box’

Irish Prime Minister Enda Kenny
Irish Prime Minister Enda Kenny. Photographer: Scott Eells/Bloomberg

Irish Prime Minister Enda Kenny said he won’t impose losses on holders of the country’s sovereign debt, as his government sought to take advantage of any European Central Bank concessions on Greek securities.

“It’s very clear that Ireland will not seek any writedown,” Kenny, 60, said in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan” yesterday in New York. “We’ll pay our dues in full and on time.”

Ireland wants to refinance about 30 billion euros ($40 billion) of so-called promissory notes it used to rescue the former Anglo Irish Bank Corp., now known as Irish Bank Resolution Corp., on better terms and over a longer period. Finance Minister Michael Noonan said yesterday that any concessions that Greece gets from the ECB could help Ireland’s negotiating position.

The ECB is considering using its bond holdings to bolster Greece’s next rescue program and support efforts to contain the sovereign debt crisis, three euro-region officials said on Feb. 4. Thomas Costerg, an economist at Standard Chartered Bank in London, said ECB involvement would open a “Pandora’s box” and weaken the central bank’s negotiation position with nations.

‘Difficult Question’

ECB President Mario Draghi declined to comment at a press conference in Frankfurt today on whether the central bank will use its own Greek bond holdings in any swap to help the nation.

“I haven’t said yet what the ECB is going to do about Greece, so it’s just a very difficult question to answer,” Draghi said. He also called Greece “unique for everything” and said Ireland’s government “ought to be praised for the constant progress that it’s making in its reforms.”

Ireland stepped out of bond markets and sought a 67.5 billion-euro international rescue in November 2010, amid concern that the nation’s banking woes would push it into bankruptcy.

Anglo Irish was nationalized in 2009. As the bill for the bank soared in 2010, the previous government decided to hold off injecting all the cash into the bank straight away.

Instead, it promised to give the cash over 10 years, by issuing promissory notes to the lender for the full amount. The bank then used the notes as collateral to access emergency funding from the country’s central bank.

Lending Facilities

Under the current plan, the state will have to raise about 3.1 billion euros a year for at least a decade to pay down the notes.

Having different lending facilities could “ease the burden somewhat” as the country tries to recover, Kenny said. “And while it’s difficult for our people and challenging for our country, we know we’re headed in the right direction.”

Noonan linked the government’s campaign for a better deal to the Greek process. Under one plan being weighed, the ECB could sell its Greek bonds to the European Financial Stability Facility at the price it paid for them rather than accept a loss along with private creditors, two of the people familiar said.

The EFSF is against that proposal because it may stretch its capacity, the officials said. Another plan is for euro-area central banks to give up profits or take losses on Greek bonds in their investment portfolios.

Several options are under informal consideration and none have gained traction so far, two of the officials said. Spokespeople for the ECB and the EFSF declined to comment.

Bond Yields

“I see it as strengthening our negotiating position,” Noonan said in an interview with broadcaster RTE yesterday. “If the ECB are prepared to make this kind of concession to Greece, it would encourage me to think that they might be prepared to make a concession on the promissory note.”

Ireland’s October 2020 bonds, regarded as the benchmark, yielded 7.03 percent today, down from 9.1 percent at the start of December. The yield on the equivalent Greek security is 33 percent and on the Portuguese note it’s 13.5 percent.

Kenny said bond yields need to fall below 7 percent before Ireland re-enters international credit markets. The government is aiming to sell treasury bills starting in June, as it seeks to avoid the need for further aid.

“I’m not contemplating a second bailout at all,” Kenny said.

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