Troika warns of financial ‘bomb’ in Dublin

The troika warned that a financial “bomb” would go off in Dublin, if Anglo senior bondholders were not repaid, a Government minister has said.

Anglo, now known as IBRC, is due to repay €1.25 billion to bondholders on Wednesday and Transport Minister Leo Varadkar said householders would suffer if it didn’t.

Mr Varadkar said any decision to burn bondholders would impact on Ireland’s reputation, increase borrowing costs for banks and semi-state companies, and ultimately lead to higher mortgages and household bills.

He said the troika of EC, ECB and IMF, which is supplying Ireland’s bailout loans, had issued a stark warning to the Government about the consequences of IBRC not repaying the money.

“What they’ve said really is that: ‘It’s on your head. We don’t want you to default on these payments. It is your decision ultimately. But a bomb will go off, and the bomb will go off in Dublin, not in Frankfurt.’”

Mr Varadkar made the comments on RTÉ’s The Week in Politics. He told the Irish Examiner last night that the comments were his characterisation of the ECB’s warning rather than a direct quote, as he did not deal directly with the troika. Mr Varadkar said there was about €2.5bn of Anglo bonds left to be repaid by IBRC, including Wednesday’s €1.25bn.

Ordering IBRC to default on the repayments would put the Government in conflict with the ECB and EU at a time when it was trying to secure from them a reduction in the overall €47bn cost to the State of bailing out the bank, he added.

The Government had to weigh up the “serious” risks of the situation against the potential benefits. “This is a state company (IBRC) and if we defaulted it would have implications for other state companies like ESB and Bord Gáis,” he told RTÉ.

A default would trigger higher borrowing costs for the state, its companies and banks, which would be passed on to householders in the form of higher ESB and gas bills and mortgages.

But Paul Sweeney, chief economist at the Irish Congress of Trade Unions, described the minister’s claims as “nonsense”, while Independent TD Finian McGrath said the public did not want to see the bondholders repaid and it was time for the Government to “stare down” the ECB.

It’s not just trade unions and opposition figures who have urged the Government to burn the bondholders. Fine Gael TD Peter Mathews last week secured Dáil time to make his case for halting Wednesday’s repayment, saying Ireland was now “at a moral crossroads”.

But Finance Minister Michael Noonan said the repayment was “an obligation of the bank and will be repaid by the bank”, adding: “To impose burden-sharing on senior bondholders, or to postpone the repayment of this bond at this point in time, is not in Ireland’s best interest. We do not need to scupper our recovery, scupper the goodwill generated, or alienate our partners by taking unilateral action which, in the medium- to long-term, will prove wholly counterproductive.”

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