Enda Kenny to tell EU leaders: We WILL burn the bank bondholders to spare taxpayers
By
John Lee
Last updated at 11:51 PM on 19th March 2011
Vow: Enda Kenny, pictured watching Ireland's rugby side beat England in Dublin yesterday, will follow up on a pre-election pledge to force speculators to 'share the burden'
Enda Kenny will stun European leaders this week by telling them he intends to ‘burn’ bank bondholders, the Irish Mail on Sunday can reveal.
He is determined to ease the pressure of debt on Irish taxpayers.
The Taoiseach will tell Thursday’s Brussels summit that it is now coalition policy to force speculative bondholders to share the debts incurred by reckless Irish banks, according to Agriculture Minister Simon Coveney.
Mr Coveney revealed the dramatic shift in policy in an interview with the MoS.
As late as last week, Finance Minister Michael Noonan was still prevaricating on pre-election threats to burn bondholders.
But stress tests have since shown that the Government will have to access up to €35bn more in bail-out funds to recapitalise the banks, on top of €190bn already owed – a level of debt now deemed unsustainable.
Mr Kenny will reveal the new ‘burden-sharing’ policy on Thursday, when he will also attempt to shave at least a percentage point from the ‘punitive’ interest rate being charged on the EU bail-out.
He will also reiterate to Nicolas Sarkozy and Angela Merkel that Ireland will not countenance any increase in the 12.5% corporation tax rate.
Ireland’s very financial existence depends on a positive outcome in Brussels.
Speaking in the Irish embassy on Avenue Foch in Paris after a meeting of EU agriculture ministers in Brussels on St Patrick’s Day, Mr Coveney said Fine Gael and Labour were both in tune with the plan to make private investors assume a share of the €190bn bank debt.
‘We don’t think that it’s fair or equitable that Irish taxpayers should be required to take on all of the debts associated with the mistakes made by Irish banks and by banks who lent money to Irish banks,’ he said.
Asked whether Ireland’s massive debt was manageable and whether a sovereign default was a possibility, the Cork South Central TD said: ‘There is no question of not paying back money that is borrowed from the IMF or the EU. The only issue is around bank debt.
‘People need to separate the two issues. We need to borrow money from the European Stability Fund and the IMF to deal with an ongoing deficit problem in Ireland until we fix that deficit, which we will do in the next three to four years.
‘But bank debt is a completely different matter. There is an assumption abroad that the bank guarantee somehow prevents the Government from forcing private investors to take on the debt.
‘But the bank guarantee doesn’t last forever – and there is a significant amount of debt that isn’t covered by the existing guarantee, about €21bn of it.
About €15bn of it is senior bond and about €5bn is subordinate debt that is linked to bonds.
‘This is something that we want to try to renegotiate, in the context of an overall European banking solution.’
Asked what would happen the bondholders, Mr Coveney said: ‘They will be asked to take a portion of the debt – in other words, that they would take a discount on their senior bonds.
Asked specifically if that would mean ‘burning the bondholders’, Mr Coveney replied: ‘You can call it what you want but it’s called essentially -burden-sharing.’
Question: ‘Would you be in favour of that?’
‘Yes, I would. We’re not going to make progress on that issue in the short term – that’s, in my view, simply a fact.’
The stress tests are being carried out on AIB, Bank of Ireland, EBS and Irish Life & Permanent, with the results due to be published on March 31.
But on Monday, Mr Noonan warned that he would be ‘surprised’ if the tests showed that the banks’ immediate need for fresh capital was limited to the €10bn foreseen in the EU-IMF bail-out deal, which also includes a further contingency fund of €25bn.
Government sources say the tests show the banks to be in a far worse state than realised and that the State may be required to draw the full contingency fund of €35bn in one go.
Emergency loans to Irish banks rose by as much as €19bn last month as the European Central Bank changed collateral rules, forcing the lenders to borrow more from the Irish Central Bank.
The banks increased their borrowing under exceptional liquidity assistance to €70.1bn at February 25, from €51.1bn in late January.
A further €116.9bn was borrowed by the banks from the ECB, down from €126bn the previous month.