Oli Rehn tells parties ‘senior bank debt not on the agenda’

FINE GAEL and Labour hopes to recoup billions of euro from Anglo Irish and Irish Nationwide Building Society (INBS) bondholders received a setback from the EU’s economics commissioner, Olli Rehn yesterday.

It came amid warnings from economics experts that any such haircut could see depositors losing some of their money also.

He told the parties, who had campaigned on the basis of changing the EU/IMF €6.7 billion loan agreement, “the issue of senior bank debt is not in the cards or on the agenda concerning Ireland”.

However, the Labour party confirmed they are committed to pursuing as part of their comprehensive deal on the bondholders.

“There is no mention of this [burning bondholders] in the agreement with the EU/IMF,” the spokesperson said, adding that they saw Mr Rehn’s statement as his opening negotiating position.

Outgoing finance minister Brian Lenihan is on record as saying they put the €20bn of senior non-guaranteed debt on the table during the EU/IMF negotiations but the ECB rejected it on the basis that it could have a knock-on destabilising effect on other banks in the euro area.

But as negotiations on a joint programme for coalition government got underway in Dublin yesterday, the parties were adamant they would deliver on their election promises, including restoring the €1 cut off the minimum hourly wage and having the interest rate on the loan lowered.

The case last month of the Danish government taking a 41% cut from the money owed to bondholders when they took over and began winding down the Amagerbanken bank strengthens the coalition’s hand.

However the Danish government, that had withdrawn its blanket guarantee of its banks, also cut a similar percentage off depositors that had more than the €100,000 guaranteed by the state lodged with the bank.

Brussels-based financial services consultant Kevin Newman said that normally depositors are obliged to take the same haircut as bondholders.

“But overall I would caution against a unilateral Irish senior bank debt renegotiation as it would lead to a further flight of deposits, unless it is accompanied by a similar debt write down at the same time in other eurozone countries,” he said.

The Labour party has taken legal advice on the issue and their spokesperson said that any action against bondholders would not affect deposits of up to €100,000 that are covered by the state’s guarantee.

“Our advice is that this guarantee could be extended to all deposit holders,” he added.

Mr Rehn repeated his statement that the 5.8% interest rate could be changed as part of an overall negotiations under way to strengthen controls over government budgets in the EU and revise the bailout fund.

In his interim forecast for the region, Mr Rehn said the EU recovery was gaining ground but was not as strong in every eurozone country. He warned of the dangers of inflation but said that the increase in the price of oil should average $100 a barrel and not overly feed in to push up core prices.