Debt deal may ‘tie up Anglo loose end’

Central Bank governor Patrick Honohan says he hopes Ireland’s bank debt deal — hammered out in Brussels in the early hours of yesterday morning — could lead to a long-term solution over the outstanding debt linked with failed lender, Anglo Irish Bank.

Noting that a lack of any existing commitment to long- term, low-cost financing of Anglo — now IBRC — cash needs has been one of the obstacles to Ireland re-entering the international debt markets, he said this could be a turning point.

“With last night’s summit statement, it may not be un-realistic to hope that this important loose end can be tied-up relatively soon,” Mr Honohan said in a speech at an Institute of International and European Affairs conference in Dublin yesterday.

“The cash needs of IBRC are being met with some €42bn of exceptional liquidity assistance from the Central Bank.

“As long as these arrangements continue, they have a sizeable impact on the gross — and especially the net — debt of the State.”

Leading Irish commentators and policymakers — including the Central Bank and the Department of Finance — have greeted the Brussels deal.

It should separate bank debt from sovereign debt and allow emergency funding to go directly to struggling banks, rather than via the country’s government; which adds to the national deficit by counting it as national debt.

Finance Minister Michael Noonan hailed the agreement — which will be worked out over the rest of the year — as breaking the link between bank and sovereign debt; but said it will make no difference to Budget 2013.

Mr Honohan said it will take time to see if markets will be reassured by the agreement.

“It remains to be seen whether the initiatives in this direction will be enough, in themselves, to reassure markets, sufficiently narrowing again the spreads on Government debt to the tight range that was observed throughout almost all of the first decade of the euro,” he said.

Mr Honohan noted that Ireland’s high, and still-growing, debt is directly reflected in yield spreads on Government debt; meaning that “financing conditions do need to be improved, as has been acknowledged at the latest summit”.

“While some may have hoped for more from Europe in the past couple of years, any fair-minded assessment must acknowledge that the official financing received has been a lifeline,” he said.

“If financial markets and growth conditions in Europe can, indeed, be stabilised; if financing conditions for Ireland can be improved; and if restraint remains the policy watchword at home, the corner can soon be turned.”