Ireland seeks to keep market confidence

If Ireland were to get the same conditions given to the Greeks, it would reduce the budget deficit substantially over the next few difficult years, according to analysts.

However, the attitude of the Government is to not pursue this just now but rather concentrate on getting a deal to cut the cost of the Anglo Irish Bank promissory notes, and on the additional €32bn put into the pillar banks.

Taoiseach Enda Kenny echoed in the Dáil the philosophy of the troika and the Government over the past few years that the priority must be to maintain and increase market confidence in the country.

This, they argue, will create its own momentum, lead to more and cheaper money from the markets not just for the State but very importantly for the banks, attracting investment and generating growth.

Brushing aside demands from independent TD Shane Ross to “get tough” with Europe, Mr Kenny insisted the Government’s diplomatic approach was best.

Dublin-based Danske Bank analyst Owen Callan estimated that if Ireland received the deferral of interest repayments given to Greece on its bailout borrowings, it would save the country having to find €12.5bn over the decade. This is equal to a cut of 8% of the country’s GDP of the budget deficit.

The Portuguese, however, say the Greek deal should automatically translate into better conditions for his country and Ireland.

Eurozone finance ministers took 12 hours to come up with how to cut the expected debt of 140% in 2020 to 124% without taking a haircut on their contributions.

Pushed strongly by the IMF, which insisted their continued involvement depended on debt being sustainable, the ministers widened their concessions from just the €54bn of bilateral loans given to Greece initially. They lowered the additional interest to be paid on top of the normal rate from 150 basis points to 50 basis points.

Ireland and Portugal will still get the full premium worth close to €8m a year. Greece will also benefit by a lowering of 10 basis points of the guarantee fee costs on their EFSF loans — something Ireland continues to pay and doubtless will earmark for a cut in the future.

Among the biggest contribution to lowering the Greek debt is the extension of the maturities of the bilateral loan of €110bn, and EFSF loans by 15 years and a deferral of interest payments of Greece on EFSF loans by 10 years. This means Ireland will wait longer to get its bilateral loan of €345.7m repaid by Greece, but the deal with the EFSF offers an opportunity to cut the cost of the Irish debt in the future.

The ministers also agreed that the profits made when the ECB’s Greek bonds are due for redemption will be remitted to the member states but they will pass it on to the Greek debt-payment account.

Few believe this is the solution to Greece’s problems, but the deal serves German national interests especially as it refuses to accept a debt writedown in the run-up to elections next year. But it allows the disbursement of €43.7bn, much of which has been delayed for months leading to more job losses and growing debts in Greece.