Irish Deputy Prime Minister Eamon Gilmore said an accord that paved the way to cut the country’s legacy bank debt won’t unravel as he sought to calm investor concern that German-led opposition could derail the agreement.
“The formal agreed position of the European Union is what was settled in June,” said Gilmore in an interview yesterday at Bloomberg’s headquarters office in New York. “That is the settled and agreed position and we have been progressing discussions with other member-states and with the European institutions on that basis and that is not changed by the statement that was issued.”
Irish bonds slumped yesterday after finance chiefs from Germany, the Netherlands and Finland indicated a retreat from the June agreement to allow the euro-area bailout fund to recapitalize banks. Their statement on Sept. 25 excluded “legacy assets” from the region’s rescue facility.
“We have to make a distinction between a statement that’s issued by a group of ministers and a formal agreement that’s reached by ministers collectively or by heads of state in government,” Gilmore said. “Between differences of language and so on and so forth, sometimes we can put a little too much emphasis on finding a particular word or phrase or a couple of phrases and reading too much into that.”
The Irish state is lobbying European leaders to help lower the cost of its bank bailout. The government has pledged or injected 64 billion euros ($82 billion) into its banking system and nationalized five of its six biggest domestic lenders. The yield on Ireland’s 5 percent security due in October 2020 was little changed at 5.15 percent today after climbing 11 basis points yesterday.
The legacy of the rescue is weighing on the economy, which almost collapsed in tandem with the bursting of a real estate bubble in 2008. Unemployment tripled to 14.7 percent in August from 2007 while austerity measures between 2008 and 2015 amount to more than 30 billion euros, or about 20 percent of gross domestic product.
Gilmore said the Irish government will “stay the course to fulfill and complete” its mandate, after Roisin Shortall resigned yesterday as a junior minister for health in the most high-profile exit from the government since it was founded in March of last year. Shortall resigned too as a member of the Labour Party’s parliamentary grouping, of which Gilmore is the leader.
While there will be “difficult days” for the government, Gilmore said it will remain focused on what it was elected to do after pledging to voters to renegotiate the terms of the country’s international bailout. “We’ve done a huge amount to restore our country’s reputation which was in tatters 18 months ago when we took office.”
The state stepped up its attempts to achieve retroactive bank recapitalization after a June 29 euro-region leaders’ decision paved the way for direct European aid for banks.
At the June gathering in Brussels, as Europe’s debt crisis escalated, the leaders opened up the possibility of aiding banks once a single supervisory system overseeing the region’s lenders was in place. The group also agreed to look again at the Irish financial sector in a bid to “further improve” the nation’s bailout program.
“Europe needs a winner and Ireland is going to be that winner and I think that there is an appreciation of that in the other capitals in Europe,” Gilmore said. “That is one of the reasons why a very expressed mention was made in June of the Irish situation and of addressing it.”
The International Monetary Fund said earlier this month that Ireland would “significantly reduce” its financing needs in the coming years if it could replace about 30 billion euros of so-called promissory notes used to bail out former Anglo Irish Bank Corp. with long-term government securities or a euro-area bailout fund loan.
Gilmore is the latest Irish leader to try and calm investor concern that the deal might unravel. Prime Minister Enda Kenny told the Irish parliament yesterday that “there is no going back” from the decision. Finance Minister Michael Noonan said “the principle of breaking the link between the sovereigns and banks has been agreed by heads of state and government. No one has questioned that.”
Irish Central Bank Governor Patrick Honohan said he tends not to react to headlines generated by “some ministers,” after the German, Dutch and Finnish finance ministers’ statement.
It’s probably not surprising “that sometimes, it’s two steps forward and one step back,” he said at an event in Dublin today.