‘Deal on bank debt before Christmas’

A deal will be done for Ireland on bank debt and a decision will be made on this before Christmas, says a Luxembourg-based source close to the Eurogroup of finance ministers.

The Eurogroup source says that Ireland has met all its IMF/EU bailout programme conditions and that has to be acknowledged. Crucially for Ireland, a deal on the bank debt is not dependent on Spain entering some sort of a programme. “Ireland can be dealt with separately. There is no reason why this cannot be the case. Spain seems to think it does not have to make its mind up [about a bailout].”

The German Chancellor Angela Merkel appeared to pour cold water on a potential bank debt deal for Ireland. At an annual press briefing on Monday she said this country was making very good progress and she did not see any need to change the conditions of the bailout agreement. But the Eurogroup source said “that is not the same interpretation [of these comments] as we are taking.”

The Eurogroup is aware of the proposal made public on Monday that the Irish government would issue a 40-year bond to replace the €28bn in the IBRC promissory notes, but the complexion of a deal on bank debt depends on the outcome of talks between the Irish government and the Troika, the Eurogroup source said.

A Brussels-based source close to the Directorate General of Economic and Financial Affairs (EcFin) and who has direct knowledge of the Irish debt relief talks says a deal will be done, but said this may not happen before Christmas.

EcFin is currently in talks — through the Commission — with the creditor nations in relation to a possible debt deal for Ireland. The message is if a deal is done on Irish bank debt, then it will help the country make a full return to the markets, which removes the need for a second bailout, said the source.

“The German government is very well disposed to Ireland and it is very impressed with the progress that has been made on the [EU/IMF bailout] programme,” said the source. “But the problem is with the German public. The fear is that there will be a challenge to what is happening and this will end up in the German Constitutional Court.”

The EcFin source says the ECB “will do the right thing” and is disposed to doing a deal with Ireland, but it is being very careful about what is politically and legally acceptable. An Irish government 40-year bond to replace the promissory notes is one of a few options that is being looked at, said the source.

An ECB spokesperson declined to comment on the current negotiations between the government and the Troika on the basis that “it could prejudice the outcome of these talks.”