Rabbitte: Spanish deal would aid Ireland

Ireland would be in a very strong position to get a better deal on the cost of the bailout and reduce the country’s deficit if Spain succeeds in getting a special arrangement for its banks, Communications Minister Pat Rabbitte has said.

He said the Government would move very quickly in the event of such a deal.

Mr Rabbitte’s comments were more positive than those of Tánaiste Eamon Gilmore, who told the Dáil a Spanish solution “may not be translatable to Ireland”.

There were unconfirmed reports that Spain will this weekend seek EU funding and that eurozone finance ministers would approve it.

The Government has put a number of proposals to the troika in relation to restructuring the €31bn Anglo promissory notes, and is hoping it will finalise the issue during its review in Dublin next month.

However, Mr Rabbitte said these proposals could change, depending on what was agreed for Spain.

“We have put a number of proposals to the troika that would require a re-engineering of the debt and there may be a different solution emerging as a result of the Spanish situation.”

Spain is trying to keep any money it would receive from the EU’s bailout fund to recapitalise its banks separate from the state’s debt.

In Ireland’s case, because it bailed out the banks, the €67bn from the EU/IMF went on the debt and deficit, driving both to unprecedented levels, with the debt due to reach 120% of GDP next year.

“Spain would be seeking to make sure this scenario was not repeated in Spain when the Fianna Fáil government found themselves strong armed to pile private debt into public debt,” he said.

Madrid wants to ensure that if it does borrow from the EFSF fund for its banks, it will not have a full austerity programme to be monitored by a troika every three months.

Madrid argues this would reduce the confidence of the markets in the country itself, push up the cost of borrowing and turn the banking crisis into a sovereign one.

“I hope they do it because Ireland would be in a very strong position to avail of a similar arrangement,” Mr Rabbitte said.

Any deal that could be done for Ireland would most likely involve borrowing the €31bn to replace the IOUs the Government gave in lieu of Anglo debts, together with about €16bn in interest payments.

The money would, the Government hopes, be paid over a long period of time and at a much lower interest rate than the 8% the State agreed to pay Anglo two years ago. This would reduce the €3.1bn the State pays annually to cover the IOUs and would cut the deficit accordingly.

Mr Rabbitte said changing the promissory note has been delayed because of other crises including Greece. “We have been dealing with this on a constant basis and have not had much luck, but if there was no other crisis we might have reached a conclusion sooner.”

In the meantime, he said, the Government had succeeded in convincing the other EU governments that Ireland’s problem was a banking one, not a sovereign one, and in this way is more likely to win the support needed to refinance IOUs.