Debt deal key to bailout exit: Gilmore

Tánaiste Eamon Gilmore called into question Ireland’s ability to emerge from the bailout if there was no deal on reducing the country’s massive debt.

Discussions with the ECB on the promissory note were at a critical phase, said Mr Gilmore. His comments came after the ECB rejected some of the Government’s proposals last week.

“The failure to conclude negotiations on the promissory note would have a potentially catastrophic effect”, he said at the EU-Latin America Summit in Chile.

He was referring to Government hopes of getting rid of the €32bn debt the State put into the main pillar banks, a move which needs agreement from EU finance ministers.

“We are in a good position to exit our bailout programme during 2013. But in order to do that, we have to reach agreement on how to deal with the burden of our national debt,” Mr Gilmore said.

“Getting there will require more work and perhaps a greater sense of that solidarity that underpins the [European] Union, because there is no guarantee of a successful conclusion.

“It is only with a combination of huge national effort and international agreement that we will emerge from this.”

Through hard work and difficult decisions, the public deficit had been reduced and the economy had stabilised, Mr Gilmore told the summit. But on the debt issue, he added: “Time is not on our side. We have entered a critical phase in this process, and a major deadline is looming.”

Mr Gilmore was referring to the Mar 31 date for repaying a €3.1bn installment of the note.

Mr Gilmore linked the need to get a deal to growth, saying that as the second most open economy in the world, Ireland understood that certainty was one of the issues that most matters to the business community. “It is our job to provide that,” he said.

The ECB issued a statement over the weekend dismissing reports that it had rejected a deal on the promissory note, clarifying that discussions were ongoing and that it was too soon to predict the outcome.

Transport Minister Leo Varadkar confirmed this on RTÉ’s The Week in Politics, saying there was no breakdown in talks but there were issues that need to be changed and agreed on.

“We have agreement on most of it. There are still some outstanding issues that are very difficult and we need to work on them. But we are still hopeful of getting a resolution,” he said.

The Government wants to avoid having to pay €3.1bn a year for 10 years along with interest on the money — and interest on the money borrowed to pay it. The next payment is due at the end of March — last year’s payment was deferred through a deal with the Bank of Ireland, much to the ECB’s disapproval.

The ECB is forbidden from financing governments and is trying to come up with a legally acceptable restructuring of Ireland’s promissory note.

Finding a way to recapitalise the other €32bn bank debt through funds from the EU’s rescue fund, the ESM, has been parked until details of a bank recapitalisation scheme are worked out.