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.