With the EU and ECB opposing any such move, Mr Kenny said yesterday he hoped to cut the cost of the EU-IMF bailout to taxpayers in some other way.
He indicated that this could be by extending the terms of the bailout loans and a reduction in the interest charged on them.
But sparing the senior bondholders from losses will severely restrict the amount of savings Ireland can squeeze from a renegotiated deal.
Mr Kenny was speaking in Helsinki, where he met with prime ministers belonging to the centre-right European People’s Party, a grouping of which Fine Gael is a member. The meeting was held to discuss the European debt crisis ahead of a crucial summit of EU heads of state in Brussels on March 24-25.
It came as Europe’s economic recovery was dealt a blow when a key credit agency downgraded its outlook for Spain. The impact of restructuring its savings banks and tough austerity measures are a major risk to Spain’s future and prompted Fitch Ratings to revise its outlook for the country from stable to negative.
In Helsinki, Mr Kenny said: “I made it clear to them that while burden- sharing was an issue in the election campaign, if it is to be closed off in some form or other on the other side, there has to be a measure of flexibility in the context of maturity dates, and we are happy to discuss and negotiate other elements of this package after Wednesday when we have a new government.”
His comments are the first clear indication that burden-sharing — or “burning the bondholders”, as it is also termed — is now off the table. This is despite promises by Fine Gael during the election campaign that it would not put “another cent” into the banks until bondholders were made take some of the losses.
Some junior bondholders in the banks have already had “haircuts” imposed on their high-risk investments under policy overseen by the outgoing government. But imposing haircuts on the safer-investment senior bondholders is anathema to the EU and ECB, which fear such a move could trigger investor flight from the eurozone.
Mr Kenny was given a warm welcome by EU leaders in Helsinki, but got the clear message that he must stick to the EU-IMF deal and honour the senior bond investments in full.
Finland’s finance minister Jyrki Katainen, who hosted the meeting, said there could be “no free lunches”.
While the EU rescue mechanism being designed for post-2013 would see the possibility of haircuts on senior bondholders, this would not happen right now, he said.
European Commission president Jose Manuel Barroso, who had a one-to-one meeting with Mr Kenny, said Irish people needed to “face reality and prepare for the future”.
German chancellor Angela Merkel said that if Ireland did get a cheaper deal, there would have to be something in return: “There will always be give and take, so to make certain things possible, further commitments, further conditionality, will be necessary.”
But the EPP gave Mr Kenny a glimmer of hope that they will support his bid to reduce the cost of the bailout to Irish taxpayers.
Their statement after the Helsinki meeting said they encouraged periodical re-evaluation of EU and international assistance “which may lead to possible amendments of the packages in place”.
The EPP said there were no voices for or against Mr Kenny’s ideas to make changes to the bailout package.
But Valdis Dombrovskis, the prime minister of Latvia, which is in receipt of an IMF bailout, cautioned that extending the length of the IMF loan would also extend the surveillance period. “This may be a mixed blessing,” he said.
While Mr Kenny was in Helsinki, Labour leader Eamon Gilmore met with socialist leaders in Athens.
Back in Dublin, their respective negotiating teams made progress on a coalition deal, with a programme for government being drafted last night. Mr Kenny and Mr Gilmore are expected to sign off on the proposed programme today.