Refinancing of €67bn legacy debt ‘politically a non-runner’

Ireland no longer needs to recoup the money it paid to bank investors when the crisis hit, the head of the EU’s bailout fund has said.

Refinancing of €67bn legacy debt ‘politically a non-runner’

Klaus Regling, head of the European Stability Fund, said that legally refinancing Ireland’s €67bn legacy debt had not been ruled out.

However, eurozone countries were unlikely to agree such a step, he said. “Politically, I think that it is de facto ruled out.”

The ECB insisted that the bondholders simply could not suffer a loss when Anglo Irish Bank collapsed. The other banks also suffered massive losses. However, he said they must be paid in full.

Many of the investors were German banks that it later transpired were also in trouble, and there were other investors from other eurozone states happy to lend money to banks in the booming Irish economy.

He was asked if the ESM could help refinance Ireland’s legacy bank debt, as sought by the Government.

Mr Regling said: “It has not been definitively ruled out in a legal sense, but politically, I don’t see a consensus there at all.”

He added: “Also, there is the question of need. Irelands now has interest rates well below 2% in its 10-year borrowing, which I think is clearly a reward for its adjustment efforts and for playing by the rules. And that helps the economy a lot.”

Asked about the ESM support for Ireland when it wanted to repay its IMF loan early, he said that the situation at the time was clear.

“Ireland clearly reached the point where market financing was much cheaper than IMF borrowing.

“And therefore, it is in the interest of all the other creditors, including the EFSF [the fund that provided Ireland with bailout funding], to see that Ireland replaces expensive borrowing with cheaper borrowing. Because it strengthens Ireland’s debt sustainability.”

Mr Regling said that the countries that borrowed from the EU funds were doing well, and if they continue to do so, they would be the best-performing economies in Europe.

Now the countries that did not go through programmes, especially the largest economies, have to do better.

He said that countries should abide by the recommendations handed out to them by the European Commission on foot of their national budgets, and that each country should ensure that their peers were implementing them.

Now however, the pressure was on the biggest economies. “For the biggest economies, I see an implementation gap”.

Germany is under pressure to start investing in their economy while France is under enormous pressure over its budget since they have said they would not meet the EU targets for their deficit and want a further two years.

It is likely that the commission will reject its budget — which will really put it up to the eurozone finance ministers to insist that every country abides by the Stability and Growth Pact and its accompanying so-called Two-Pack set of rules.

Mr Regling said that the eurozone was getting to the end of the crisis, but he warned that this would not be the last crisis.

“It’s part of our economic system. It happens. We don’t know exactly when and what would trigger it. It is normally triggered by something that nobody had anticipated,” he said.

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