Noonan asserts commitment to paying back debt

FINANCE Minister Michael Noonan firmly committed the taxpayer to paying back “to the last red cent” all the money lent to the Irish state and the two pillar banks of AIB and Bank of Ireland — but not to unsecured bondholders in Anglo Irish Bank.

Mr Noonan’s statement firmly revokes pre-election promises to burn unguaranteed bondholders and came hours after markets reacted negatively to his announcement in Washington on Wednesday that he will explore haircutting the Anglo bondholders.

The minister clarified his statements yesterday, saying there was no change in Government policy and the European Union/International Monetary Fund rescue loan programme was being fulfilled completely.

He will not move against any bondholders, however, without approval from the European Central Bank.

He said: “There are some outstanding issues, as everybody knows, with Anglo Irish Bank. All I have been saying here is that we want to talk about them in the late autumn with the ECB.

“There is no change in policy. Our position is constant... Every bondholder in the pillar banks and every bondholder who has given debt to the Irish state, we will honour their debt to the last red cent.”

The ECB has been firmly against hitting bank bondholders, forcing taxpayers instead to shoulder losses.

However, Brussels-based economist Daniel Gros said Mr Noonan should immediately set the process in motion not just to haircut the unsecured senior bondholders of Anglo but also those of AIB and Bank of Ireland that also fall outside the state guarantee.

“Once they break the principle with the Anglo bondholders, where they could pick up about €3 billion, it makes sense to go ahead with the other two banks also where there is about €15bn,” he said.

While it would unsettle markets at first and banks would not be happy, Mr Gros believed the ECB would have no option in the end but to accept it.

Bloxham chief economist Alan McQuaid agreed, saying the Government needs to be far more radical.

“It’s a risk business and the tide has turned and the only way we can get out of this is bond sharing.”

Mr McQuaid added: “There is carnage on the markets and the danger now is that the Greek situation is so fragile, the contagion effect for Ireland could be enormous.”