Ireland Seeks Easing of Its Debt Terms

Ireland, whose banking crisis required it to receive a bailout of €85 billion, or $110 billion, by international lenders in 2010, is pressing for the right to ease the payback terms of billions of euros of debt it incurred in that process. It is also pushing other European capitals to stick to a promise made last year that the euro zone’s bailout fund could eventually be used to prop up struggling banks directly, relieving governments of that burden.

Ireland’s proposals are likely to come up when European finance ministers begin two days of meetings in Brussels on Monday.

The issue is significant because it could have a decisive impact on the ability of a fragile Irish economy to emerge from the crisis, officials say. And within European politics, a new relief package would be significant because Ireland is the only bailed-out euro zone country so far that in hewing to the harsh austerity terms of its rescue has shown clear, if early, signs of an economic recovery.

Since 2008 the country has come up with spending cuts and tax increases totaling 18 percent of its gross domestic product. But unemployment remains high and households remain weighed down with debt, a legacy of the real estate crash that was the main cause of the banks’ troubles.

And yet, visiting Dublin on Thursday, the president of the European Commission, José Manuel Barroso, said that Ireland had “turned the corner,” proving that the international rescue programs put together by the euro zone and the International Monetary Fund “can work and that there is light at the end of the tunnel.”

Ireland is pressing an issue raised at a European Union summit meeting last June, when leaders promised that the euro zone’s bailout fund would eventually be able to lend directly to troubled banks, once a more centralized banking system was in place for the 17-nation euro zone.

At the time the deal was seen as significant because it could alleviate the debt burdens that bank bailouts had placed on the governments of Ireland and Spain, among others. But in subsequent months, the finance ministers of Germany, Finland and the Netherlands sought to dilute the agreement, arguing that it referred only to new bank rescues and not to so-called historic or legacy assets.

In addition to direct help for its banks, Ireland is also pressing for longer maturity dates on its international loans. Mr. Barroso, asked by reporters Thursday about Ireland’s proposals, said that the European Commission — the administrative arm of the Union — “has been arguing for rewards to those who are the good performers in terms of the programs.”

He cited Ireland and another bailed-out euro member, Portugal, as the members “we have a positive attitude toward.”

Under Ireland’s definition, its “dead banks,” which were crushed by the weight of bad debt incurred in the property and credit bubble, would not qualify. These include Irish Bank Resolution Corp., which took over Anglo Irish Bank, and the Irish Nationwide Building Society.

But banks that still operate but have been recapitalized by the state could receive help.

Michael Noonan, the Irish finance minister, said there was “a distinction being drawn between the word ‘legacy’ and the word ‘retrospective.”’

“If you have a dead bank there are legacy issues, and we are not negotiating for anything broadly to be done for Anglo Irish-I.B.R.C.,” Mr. Noonan said.

He said that about €28 billion was invested in banks that were still trading, and that this was debt his government would like the euro zone bailout fund, the European Stability Mechanism, to assume.

Though no direct recapitalization of banks from that fund is likely to take effect before the end of the year, a promise that Ireland could receive such help could bolster market confidence. That might aid Ireland’s effort to emerge from the bailout program and return to the bond markets fully next year.

Alan Barrett, head of the economic analysis division at Ireland’s Economic and Social Research Institute, said there were several factors that could derail the government’s plans. These include a lack of domestic economic demand, the weakness of vital export markets including the euro zone, and the appreciation of the euro against the currency of Ireland’s neighbor and key trading partner, Britain.

And while Ireland’s ratio of debt to gross domestic product has been forecast as peaking soon at around 120 percent and then begin to fall, Mr. Barrett estimated that there was still a 30 percent chance that this would not happen. “We are basically of the view that this is a fairly unstable situation,” he said.

Article source: http://www.nytimes.com/2013/03/02/business/global/ireland-seeks-easing-of-its-debt-terms.html?partner=rss&emc=rss