“The net point is that Ireland’s lenders retain all the power…”

With tensions rising across Europe, in the Irish Times Arthur Beesley maps out the territory as the Irish Government prepares to attempt to tentatively restart the debate on reducing Ireland’s bail-out interest rate.

As noted previously, Arthur Beesley has highlighted some of this territory before

The Government’s position is not at all strong, so repeated claims that the situation is now so grave as to merit pursuing senior bonds serves to emphasise the requirement for something else to ease the pain. Important here is the stance of Ireland’s euro-zone sponsors, which have a clear interest in not doing anything which might further threaten already shaky markets. With senior bond default a no-fly zone thus far in the crisis, there is nothing to suggest a rethink is imminent.

In addition, fresh electoral pressure on German chancellor Angela Merkel greatly diminishes her room for manoeuvre. The chancellor would be blamed if contagion from Irish banks dislodged any German lenders.

And in today’s Irish Times he spells it out

It is in Budapest that the Minister must overcome Franco-German pressure to provide a concession on corporate tax in return for a one percentage point cut in the interest rate on Ireland’s bailout loans.

That debate, “parked” last week pending the stress tests, now looms again. Whereas Germany has signalled its willingness to accept something other than a gesture on the tax, France has not yielded an inch.

In all likelihood, Mr Noonan will have to provide something substantial on the fiscal front to get better terms. While he may see potential here in overlooked elements of the programme for government, he needs to avoid being accused of presenting something old as something new.

He might quietly raise the question of burden-sharing with senior bond investors, something promoted with aplomb by some of his ministerial colleagues. Yet there is still no appetite for that in Europe, where leaders felt the heat of an existential threat to the euro only months ago.

Even if the position of Ireland, Greece and Portugal remains unresolved, people at the heart of the battle believe they have brazened out the worst of the emergency. They are not inclined to light the touchpaper of contagion again by going after senior bondholders.

The net point is that Ireland’s lenders retain all the power. Whereas the Government came to office determined to “renegotiate” the bailout, the deal as it stands remains essentially the same.

With more capital than foreseen going into the banks, there is a higher mountain to climb now and little certainty that better terms can be extracted.

Read the whole thing.

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  • Henry94

    The lenders may have the power to set terms but they don’t have the power to get blood out of a stone. What we have in the policy of the government is a recipe for mass-emigration. 20 billion in interest in an economy generating 30 billion in tax and spending 50.

    And the lenders have the power? The lenders are screwed.

  • @ Henry94

    Too true . . . but emigration is emasculation. Stand strong . . . have a referendum on default, then print the punt.

    The Germans are wising up just nicely that they are paying the banks for the banks’ own foolish mistakes.

  • Mack

    Some lenders are more equal than others.

    In particular the creditors to Irish banks (and the new bailout lenders) would appear to be more ‘equal’ than the purchasers of sovereign debt. Via Jeremy Warner in the Telegraph, quoting EU statement –

    “If, on the basis of a sustainability analysis, it is concluded that a macro-economic programme cannot realistically restore the public debt to a sustainable path, the beneficiary Member State will be required to engage in active negotiations in good faith with its creditors to secure their direct involvement in restoring debt sustainability.”

    http://www.telegraph.co.uk/finance/comment/jeremy-warner/8419844/Is-the-cost-of-saving-the-euro-beyond-reach.html

    Standard & Poors downgrading Ireland

    The downgrade reflects our view of the concluding statement of the European Council (EC) meeting of March 24-25, 2011, that confirms our previously published expectations that (i) sovereign debt restructuring is a possible pre-condition to borrowing from the European Stability Mechanism (ESM), and (ii) senior unsecured government debt will be subordinated to ESM loans. Both features are, in our view, detrimental to the commercial creditors of EU sovereign ESM borrowers.

    Translation, it is EU policy to force sovereign debt defaults on bail out nations, EU funds are untouchable, therefore market participants considering lending to any nation already participating in, or likely to participate in and EU bailout, are deranged.

  • Henry94

    Agent Heggle

    I couldn’t agree more.