(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)
LONDON, Jan 25 (Reuters Breakingviews) - Ireland remains at the top of the austerity class. The country so far has met its debt, deficit and bank deleveraging targets. But the global slowdown puts its plan in peril, and Dublin will struggle to return to the market in 2013 as planned. It wants its partners’ help with 31 billion euros of promissory notes the government gave to Anglo Irish Bank -– accounting for some 80 percent of the total -- and two smaller lenders. It’ll be hard to pull off. But with Greece on the brink of default, Europe may want to reward good behaviour.
Ireland’s hopes for an export-led recovery are dwindling and Glas Securities reckons the country may need to raise 10 billion euros, apart from troika money, in 2013, and a further 24 billion in 2014. Dublin has already slashed public spending, and is planning to sell state assets. So restructuring the bank bailout IOUs offers one of the few ways to close that funding gap.
The country will pay an interest rate of more than 8 percent on the money raised for the notes. And payments to the banks are front-loaded -- 3.1 billion a year until 2023 and then falling to 910 million euros a year until 2030. Dublin would like to tap the European Financial Stability Facility (EFSF) for cheaper funding, and to delay the payments by a few years. A restructuring could help avert a funding crunch, while decoupling the government’s credit-rating from its Anglo millstone.
Ireland’s case is that it “took one for the team”. After all, European policymakers prevented the country from burning rescued banks’ bondholders -– thereby raising the cost of Ireland’s bank bailout -- while they agreed that Greece impose losses on its private creditors.
The technical obstacles may prove insuperable -- Anglo Irish may need the cashflows to maintain its capital -- so Ireland is also looking at other ways to modify the terms of its bailout programme. Delaying the banks’ loan-to-deposit targets could stymie the deposit war. And allowing more time for bank deleveraging would avert fire-sales in a crowded market.
But the hard truth is that Ireland will likely need more help. And the euro zone has a vested interest in showing others that austerity ultimately can pay.
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-- Reuters: Irish trade surplus hits record high in Nov [ID:nL9E7MU039]
-- Parliamentary answer from the late Brian Lenihan, then Ireland’s finance minister, on the interest rates on the promissory notes, Jan. 12, 2011:
-- Parliamentary answer from Michael Noonan, Ireland’s finance minister, on the repayment schedule for the promissory notes in Anglo, INBS and EBS, 4 Oct. 2011:
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(Editing by Pierre Briançon and David Evans)
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