Ireland must honour payments: Draghi

Ireland must continue to make payments on €27bn-worth of high-interest IOUs on schedule, ECB president Mario Draghi said yesterday.

However, he refused to be drawn on the likelihood of a deal to ease the country’s funding burden.

The Government has been campaigning for months to soften the terms of the bank bailout by replacing the promissory notes given mainly to the former Anglo Irish Bank with another instrument that would lengthen their maturity and cut their interest rate.

Questioned at the ECB’s post-policy meeting news conference, Mr Draghi declined to speculate on the likelihood of a deal with the Government on the IOUs.

But he said there should be no slippage on the current repayment schedule.

“We expect that future redemptions will be met according to the schedule to which the government has committed itself,” said Mr Draghi.

“It is of the utmost importance that the commitments of the Irish State are met in line with standing contracts and agreements.”

Ireland last week won some breathing space by avoiding the immediate payment of €3.1bn due on the IOUs, settling the bill by issuing a 13-year bond instead of paying cash.

But Mr Draghi said that deal — which involved part state-owned Bank of Ireland and Nama — was an Irish operation that did not directly involve the ECB.

Mr Draghi said he believed Ireland had a very good chance of returning to international bond markets when its EU/IMF bailout programme runs out at the end of next year.

He said he was confident Ireland would vote in favour of Europe’s new fiscal treaty on May 31.

The ECB held interest rates at a record low of 1% yesterday, resisting German pressure to flag an exit from its crisis-fighting mode while support measures take full effect and support an increasingly shaky recovery.

A batch of grim economic indicators and renewed concerns about the public finances in Spain — the eurozone’s fourth-largest economy — have fuelled worries that the eurozone is in recession and that the sovereign debt crisis may flare up again.

“Downside risks to the economic outlook prevail,” Mr Draghi told the news conference after the bank held rates, as expected.

Germany’s powerful Bundesbank has led a push by central bankers from the eurozone’s core for the ECB to begin preparing an exit from crisis measures that have seen it loosen the rules for tapping ECB funding operations.