Ireland ‘will not seek haircuts for investors’

IRELAND will not be seeking to impose haircuts on investors, Taoiseach Enda Kenny made clear during his visit to Brussels, emphasising that any debt write-down for Greece would be for Greece exclusively, as fears grew that such a move would destabilise the euro.

However, there were further indications yesterday that preparations are being made to protect EU banks as far as possible against the outcome of an expected Greek orderly default, especially those banks holding Italian and Spanish bonds.

The ECB and the head of Germany’s Deutsche Bank both warned against insisting on banks taking a bigger than the reported 21% haircut agreed in July, with the ECB warning it could “put at risk the financial stability of the currency area as a whole”.

EU sources admitted, however, that the deal arranged by the banks does not cut Athens’ debt sufficiently because of various factors including poorer growth, failures to meet targets and increased costs to Greece. The deal cut very little off the country’s debt expected to reach close to 180%.

Experts believe it will be impossible to firewall any country in the fallout from a possible haircut of up to 50% and debt swaps to bring Greek debt closer to 100% and make it more sustainable.

Minister for Communications, Transport and Natural Resources Pat Rabbitte, in Brussels yesterday for discussions with the relevant commission departments, said he did not believe there was any danger for Ireland in a Greek write-down.

However Mr Kenny was adamant following his early morning meeting with Commission president Jose Manuel Barroso that this must be made clear.

“It needs to be made perfectly clear that PSI is an issue of concern, not only to Ireland but to other countries and the same clarity of the exclusiveness and uniqueness of this in respect of Greece as was referred to in July, should be made perfectly clear”.

The way was finally cleared yesterday evening for changes to be made to the European Financial Stability Facility when the Slovakian parliament became the last of the 17 eurozone countries to approve it. The vote, however, brought down the government.

Mr Barroso is meeting national leaders to gain their support for the commission taking a central role in the new governance of the eurozone countries.

After the meeting with Mr Kenny, Mr Barroso said he congratulated Ireland’s recent economic performance and suggested the EU shared the Irish Government’s ideas of maintaining the “community method” in any future economic governance rules.

He has also been gauging support for introducing the permanent bailout fund, the European Stability Mechanism (ESM) in mid-2012, a year earlier than planned.

Germany in particular favours this because it gives the rescue programme a proper legal base and means that loans from it are not added to governments’ debt. Mr Kenny said he said he did not object to this.

The details of what sovereign bonds Europe’s banks are holding should be known in the next few days. Sources insist that the level of recapitalisation required cannot be known until these results are in, but said the definition criteria will be based somewhere between Basel II and Basel III.