IMF backs plan to burn bondholders

THE Government will seek to impose significant losses on the senior unguaranteed bondholders in Anglo Irish Bank and Irish Nationwide Building Society, Finance Minister Michael Noonan has said.

However, his statement and the near-collapse of the Greek government delivered a blow to investor confidence sending the cost of insuring Greek, Irish and Portuguese debt higher amid fears of a default.

Mr Noonan made his announcement about the €3.5 billion of senior, unsecured, unguaranteed Anglo and INBS bonds following a meeting with the IMF, which he said supported the strategy.

“I got an agreement that they understood our position fully and that they would work with us to seek to resolve it. Our difficulty on this on previous occasions was never with the IMF. The difficulty is what attitude the European Central Bank may take.”

A spokesperson for the European Commission said that, if it was legally possible to do and it did not lead to financial instability, “the more the burden is shared rather than resting mainly on the taxpayer, it’s not something we can oppose”.

Mr Noonan said the Government has signalled to the EU and the ECB that they want to discuss the situation of Anglo in the autumn.

“We’ll see how it plays. There are other participants. We will have allies in the debate and we will have people who will see it differently. So we’ll see how it plays out,” he said.

The minister explained that both Anglo and INBS are no longer operating banks. “They’re really warehouses for impaired debt.”

However, Mr Noonan’s remarks were being blamed by commentators for unsettling the markets last night which were already nervous because eurozone finance ministers have not yet agreed on a second bailout for Greece, and because of the fragile political situation in Athens.

Tens of thousands of protesters were on the streets in Athens as an estimated two million public workers launched a nationwide strike.

Greek Prime Minister George Papandreou, with his majority reduced further by fresh defections, announced he will form a new government today and seek a vote of confidence after bids to form a national unity government failed.

He also needs to pass the latest fiscal plan in parliament, without which the next tranche of his country’s bailout loan may not be paid out.

“He came very close to succeeding. This is bad news,” said an EU source.

Eurozone finance ministers will meet in emergency session next Sunday and Monday in a last-ditch effort to reach an agreement.