Ireland flags extension of bailout beyond 2013

Reuters News
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Posted: Jul 22, 2011 12:40 PM
Ireland flags extension of bailout beyond 2013

By Carmel Crimmins

DUBLIN (Reuters) - Euro zone countries have agreed to keep funding Ireland beyond 2013 if it is not able to tap debt markets, Finance Minister Michael Noonan said on Friday, signaling for the first time doubts about Dublin's ability to regain its economic sovereignty.

Euro zone leaders agreed a second rescue package for Greece at an emergency summit in Brussels on Thursday and Noonan said part of the deal involved a pledge to keep propping up Ireland and Portugal provided they were meeting targets under their existing rescue programs.

"There is a commitment that if countries continue to fulfill the conditions of their program the European authorities will continue to supply them with money even when the program is concluded," Noonan told Irish state broadcaster RTE.

"The commitment is now written in that if we are not back in the markets the European authorities will give us money until we get back in the markets."

The European Union and the International Monetary Fund have so far made no public commitment to financing Ireland beyond the end of the program in 2013.

A communique from Thursday's summit of euro zone leaders said countries "must successfully implement" their existing bailout programs.

Noonan insisted such additional support would not constitute a second bailout, on top of last year's 85 billion euros EU-IMF rescue deal, but analysts said he was playing with words.

"It doesn't matter what you call it. Ireland can't really survive on its own without European help. The European project isn't going to work unless the center steps up," said Brian Devine, economist with NCB Stockbrokers.

Dublin has enough funding under its current bailout to see it through till the end of 2013 but with a near 12 billion euros bond redemption looming in January 2014, many investors believe the government will start seeking additional official assistance sometime in 2013.

The government has said it will make a tentative return to bond markets next year, likely by issuing treasury bills, followed by bonds in 2013, but that does not exclude them from also tapping official creditors.

Ireland will need nearly 34 billion euros to cover its budget deficit and maturing debt in 2014 and 2015.

GAIN OF 1 BILLION EUROS

European partners agreed to cut the cost and extend the maturity of existing bailout packages for Ireland and Portugal on Thursday. Noonan said the annual saving from the 2 percentage point rate cut could be over 1 billion euros, above the 600-800 million euros saving flagged by Prime Minister Enda Kenny.

"I have enough evidence to suggest that by next year the annual saving could be over a billion," he said.

Noonan said the additional savings would be generated from similar reductions in the cost of bilateral loans from the UK, Denmark and Sweden, which together amount to 4.8 billion euros, and technical changes to the rate on its IMF loans, which total 22.5 billion euros.

British finance minister George Osborne said on Friday that London was prepared to cut the interest rate on its 7 billion pound contribution to Ireland's bailout [ID:nL6E7IM189].

Ireland is borrowing around 40 billion euros from Europe via two rescue funds and is providing 17.5 billion euros from its own cash reserves and existing borrowings.

Noonan said such a reduction in interest payments could mean less harsh budgets in the future but for 2012, the government was committed to getting the deficit down to 8.6 percent of GDP from an estimated 10 percent this year. Next year's budget will be unveiled in December.

"Going forward there is a prospect of budgets being less harsh," he said. "But I am afraid we still have to face the music in December."

Even a reduction of 1 billion euros, while a major political victory for Dublin, will make only a small dent in Ireland's annual debt burden.

Ireland will still be channeling close to 20 percent of its tax revenues to chipping away at its interest in a few years time.

(Additional reporting by Conor Humphries; editing by Stephen Nisbet)