A solution to Spain’s massive bank problems gaining support in the EU would offer Ireland an opportunity to cut the cost of our bank debts, Finance Minister Michael Noonan has said.
It came as rising concerns over Greece’s eurozone future pushed Irish bond yields higher, potentially complicating Government plans to return to international bond markets.
Irish 10-year government bond yields nudged briefly above 7% on the back of market speculation that Greece could leave the single currency. If Irish bond yields remain above 7% for an extended period, it could hamper plans to return to the market.
The IMF is pushing for the EU’s new bailout fund, the ESM, to lend directly to stressed banks and Patrick Honohan, the governor of the Central Bank, supports this thinking. It would mean changing the rules of the ESM and would cut the exposure to taxpayers who have been forced to pick up the tab in Ireland under its current programme.
Currently the ESM could lend only to the state that would use the money to recapitalise its banks, but would have to accept an austerity programme that risks spreading contagion.
Spain’s finance minister, Luis De Guindos, said his country has done everything to stabilise the economy and grow, and now needed the eurozone’s co-operation.
Markets and the IMF piled on the pressure on the EU to take steps as Spain’s borrowing costs rose.
Mr Noonan said the Government would watch “with great interest” any development on solutions to the Spanish banks.
IMF chief Christine Lagarde recently said if intervention were required in Spain, it should focus on the banking system, and aid given should not become part of the sovereign debt.
“She seemed to be outlining a new IMF policy position,” Mr Noonan said, adding that many people including Mr Honohan had echoed this position.
“If we cannot get what we are looking for around the promissory notes there would be an alternative to give the same effect in reducing the burden of the legacy debt that was imposed on us.”
Adding to the pressure last night, the IMF warned of the possibility of a “political accident in the euro area that could trigger a financial crisis engulfing the region”.
The issue will be included in the talks on a growth pact to be discussed by German chancellor Angela Merkel and new French president, François Hollande today.
Mr Noonan said what was happening in Greece “seems to be sending a very salutary message to the Irish electorate”. While opinion polls suggested the yes vote was hardening, he said it was early days. “A lot could happen over the next two and a half weeks so it’s certainly not over and nobody should be complacent.”
Meanwhile, Eurogroup president Jean Claude Juncker criticised countries that have said Greece should leave the euro. “I don’t like the way of threatening Greece day after day. This is not the way to deal with partners and citizens in the EU.”
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