EU ‘needs to implement solution to debt crisis’

THE EU needs to rapidly implement a solution to the eurozone debt crisis to stop the contagious effects on countries like Ireland, the IMF has warned.

Ireland is slowly returning to growth and meeting its commitments under the bailout programme but is being negatively viewed by the markets because of the threat of contagion, the IMF’s European deputy director, Ajai Chopra, said yesterday.

Mr Chopra was speaking at a press conference in Dublin held by the troika of EU, ECB and IMF to announce the results of their latest quarterly review of Ireland’s adherence to its bailout targets.

The troika said the programme remained on track and implementation was “steadfast”. As a result, they will release the latest quarterly tranche of funding — some €4 billion — due under the bailout.

The positive verdict came just two days after ratings agency Moody’s had downgraded Ireland’s credit rating to junk status.

Although Ireland doesn’t need to borrow at the moment, given the bailout cash, its credit rating will have a major effect on borrowing costs when the country eventually does return to the markets after mid-2013.

At a separate press conference, Finance Minister Michael Noonan admitted Ireland faced a big hurdle, in particular in January 2014 when €11bn-€12bn will have to be raised to meet debt repayments.

But Mr Chopra said the downgrading was a direct consequence of the eurozone crisis rather than any specific problems with Ireland. He called on EU leaders to implement a comprehensive solution quickly.

“If it wasn’t for contagion risks, we would be seeing significantly lower spreads (borrowing costs) in the case of Ireland,” he said.

“What we need, and what is lacking so far, is a European solution to a European problem.”

Mr Chopra welcomed the latest round of measures proposed by eurozone finance ministers this week and said they now needed to be promptly implemented.

Those measures include enhancing the scope of the EU bailout fund, lengthening the maturities of bailout loans and lowering the interest rates that apply.

European Commission representative Istvan Szekely said that, if agreement could be reached on those proposals, Ireland could certainly benefit from them. He and ECB representative Klaus Masuch ruled out going further and imposing losses on senior bondholders.

The ECB has rigidly opposed any proposals to burn senior bondholders and Mr Masuch said its position remained the same.