Greek deal will not mean rate cut for Ireland: Hayes

The latest Greek bailout is a once-off and holds nothing for Ireland in terms of cutting the cost of its debt, junior minister Brian Hayes and EU officials insisted last night.

Ireland’s focus is now on re-engineering the Anglo Irish promissory notes, with Taoiseach Enda Kenny visiting German chancellor Angela Merkel in Berlin and the Italian prime minister Mario Monti in Rome later this week.

With the Greek package out of the way, Ireland is expecting more attention to be paid to its need to reduce its debt, which is projected to reach 124% of GDP in 2014, described as the “very edge of sustainability” by Goodbody’s Juliet Tennent.

Minister of State at the Department of Finance Brian Hayes insisted there was no timeframe for a new deal on the Anglo IOUs, but with a repayment of €3.1 billion due next month, the Government is anxious to conclude negotiations with the ECB, but also needs the agreement of all member states.

The bailout fund, the European Financial Stability Facility, is also planning to raise funds on the bond market next month for the next tranche for Ireland, according to an official.

With growth forecast at 0.5% of GDP this year, a fraction of what was hoped for when the bailout agreement was concluded, the updated Memorandum of Understanding said next year’s budget consolidation would have to be “at least” €3.8bn. Ireland must cut the budget deficit to 8.5% of GDP, which some fear may not be achieved.

Following the 13-hour meeting to agree the Greek deal, IMF head Christine Lagarde, who was at the meeting, warned the success of the strategy depended on implementation by Greece, and “long-term support by euro area member states”, which could mean additional funding to avoid a default many believe is just a matter of time.

The former French finance minister did not have a mandate from the IMF, but will recommend it contributes €13bn, in addition to the €10bn remaining from the first bailout.

She also welcomed agreement to run in parallel the EFSF bailout fund with the permanent European Stability Mechanism (ESM) fund, which should be worth €750bn. EU leaders hope the IMF will add significantly to this, but many countries, including China, have been reticent.

The Greek deal cuts the private sector debt by 53.5% from €200bn to €93bn, with bondholders getting a sweetener that promises a high yield if Greek GDP growth is higher than forecast. President of the Eurogroup Jean-Claude Juncker said he looked forward to a high participation rate when the offer opened for three days from Mar 8.

Some fancy footwork to avoid having the ECB breach its rules saw them agreeing to return profits on the €50bn of Greek bonds they hold to national central banks. Countries agreed to allocate some of it towards cutting Greek debt. Together with a retroactive lowering of the interest rates on the Greek loan, this will lower financing needs by around €1.4bn. National central banks also agreed to forgo payments from Greece on the bonds they hold until 2020, cutting another €1.8bn off the debt. The cumulative result is to cut the Greek debt from 165% now to 120.5% in 2020.