April 4 (Bloomberg) -- Ireland’s best chance of securing an accord with European partners ove a restructuring of its bank-bailout costs is for voters to approve a proposed fiscal compact, said Brian Hayes, a junior government minister.
“The best way of getting this deal ultimately is to vote yes,” Hayes, whose role straddles the Finance Ministry and Ministry for Public Expenditure and Reform, told Dublin-based RTE Radio today. The “best way we stay fully engaged” with European partners “is to vote yes,” he said, adding that the government isn’t linking approval of the pact to an agreement on restructuring bank debt.
Prime Minister Enda Kenny has repeatedly said he isn’t looking for a banking deal as a trade-off to win Irish support for the European fiscal pact in a national referendum on May 31. The compact requires nations to anchor balanced-budget rules in national law and accelerates sanctions on states that exceed the European Union’s deficit limits.
Ireland has been seeking help since September to refinance about 30 billion euros ($40 billion) of so-called promissory notes used to rescue former Anglo Irish Bank Corp. As part of a broader deal, the government also plans to move loss-making assets, mainly mortgage loans that track the European Central Bank’s key rate, out of some other state-controlled banks.
“The link that politicians continue to draw between a yes vote in the referendum and a positive outcome in securing a deal on bank debt is unhelpful,” said Stephen Lyons, an analyst with Dublin-based securities firm Davy. “A yes vote in its own right is the best outcome for the Irish people as it will facilitate access to the” European Stability Mechanism, the permanent euro-area bailout fund, “and accelerate Ireland’s return to the bond market.”
Fifty-nine percent of Irish people who expressed a preference intend to support the fiscal treaty in the referendum, Paddy Power, the Dublin-based bookmaker, said March 29, citing a poll carried out for it by Red C. The research company surveyed 1,009 voters March 26-28 by telephone.
Ireland has been absent from bond markets since September 2010, two months before it was forced into an 67.5 billion-euro international bailout. Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.82 percent today, down from 9.1 percent at the start of December.
Ireland has injected about 62 billion euros into its banks in the past three years to shore up their balance sheets amid soaring bad-loan losses following the collapse of a domestic real-estate bubble. It has committed a further 1.3 billion euros to one of the lenders, Irish Life & Permanent Plc, by the end of June.
Finance Minister Michael Noonan said on March 29 that Ireland may seek a bond from the European Financial Stability Facility, the euro-area bailout fund, to refinance the Anglo Irish promissory notes, which require Ireland to pay back about 3.1 billion euros annually over more than a decade. Anglo Irish was renamed Irish Bank Resolution Corp. last year.
Ireland effectively side-stepped the annual cash payment last month by issuing a long-term bond to Anglo Irish as it continued its campaign to restructure the overall bank bailout. The deferral move helped narrow the government’s budget deficit in the first quarter by 40 percent to 4.3 billion euros on the same period last year, the Finance Ministry said yesterday.
ECB President Mario Draghi said that it’s of “utmost importance” that Ireland meets “standing contracts and commitments,” when asked about the promissory notes at a press conference in Frankfurt today.
“If we do the bigger deal, a part of that will be to use some of our gains to further improve the position of the banks and removing loss-making assets from their balance sheets,” said Noonan on March 29.
Irish authorities are considering moving some bad mortgage loans and loans that track the ECB key rate out of Allied Irish Banks Plc and Irish Life, which was once the biggest mortgage lender, according to four people with knowledge of the discussions. These loans may be transferred to IBRC, they said.
IBRC Chief Executive Mike Aynsley said on March 29 he was in talks that may lead to the lender taking on residential mortgages from other banks. “Unless these banks get in a profitable” position, they’re “‘not going to be able to provide credit’’ and aid economic recovery, he said.
The country’s so-called bailout troika, comprising the EU Commission, the ECB and the International Monetary Fund, have yet to complete a working paper on bank restructuring. While Irish ministers have raised the issue ‘‘continually’’ with European colleagues, Hayes said he has ‘‘no expectation’’ of a deal being agreed when euro-area finance minister meet in May.
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