Euro bailout fund chief warns Ireland not to ease up on austerity plans

DUBLIN Fri Jul 26, 2013 8:55am BST

Klaus Regling, CEO of the European Financial Stability Facility (EFSF), gestures before speaking at the International Institute for Strategic Studies (IISS) Fullerton Lecture in Singapore August 24, 2012. REUTERS/Tim Chong

Klaus Regling, CEO of the European Financial Stability Facility (EFSF), gestures before speaking at the International Institute for Strategic Studies (IISS) Fullerton Lecture in Singapore August 24, 2012.

Credit: Reuters/Tim Chong

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DUBLIN (Reuters) - Any slippage in Ireland's austerity targets "would not be well received" by those deciding whether to offer Dublin a post-bailout credit line, the head of the euro zone's rescue fund said in an interview with the Irish Times on Friday.

Klaus Regling also said he did not think the European Stability Mechanism (ESM) fund could take loss-making tracker mortgages off the books of Irish banks, a move the Irish government says would speed lenders' return to profitability.

Ireland is widely expected to become the first euro zone country to exit a bailout programme later this year.

But government ministers have hinted in recent months that the country might ease up on its plans for tax hikes and spending cuts worth 3.1 billion euros in an October budget.

Regling told the paper that Ireland's EU-IMF lenders had made "very clear that another 3.1 billion euro fiscal adjustment ... is the important next step."

But Regling demurred on whether that target was a precondition for any precautionary credit line, a backstop the Irish government is considering asking euro zone leaders to grant to ease its exit from the bailout.

"I don't know what the conditions would be, but if the agreed target were not reached I'm sure that would not be well received," Regling said.

Asked whether the ESM could take on loss-making tracker mortgages, which were granted during the boom at low interest rates and are dragging down Irish lenders, Regling said it would not be possible under current rules.

"That instrument doesn't exist at all for the ESM. And I don't see an appetite among the euro area countries to create a new instrument," he said.

(Reporting by Conor Humphries; Editing by Hugh Lawson)

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