Republic to exit bailout scheme by 2013, says minister
The Republic's finance minister Michael Noonan said yesterday that Ireland should be out of the €67.5bn bailout programme by the end of 2013 while Greece will be stuck in it for a decade.
His comments came after a pre-dawn agreement to slash Greece's massive debts by 50% and boost the eurozone bailout fund to €1trn.
Earlier Sinn Fein leader Gerry Adams suggested that Taoiseach Enda Kenny had serious questions to answer about the deal struck in Brussels.
He added that while Greek banks were being forced to share the burden, Irish banks are being propped up by the taxpayer.
Mr Noonan (below) said: "Could you imagine the situation in Ireland if we went to the electorate and said you have another 16 years of this and you have declining growth rates and severe austerity measures."
Earlier Tanaiste Eamon Gilmore defended the Government's position that Ireland will not seek to default on any of its eurozone debts.
Mr Gilmore said: "We don't want to be in a situation that we are in recession for the next 10 or 15 years.
"If we go down the Greek route, that is the consequence of that.
"What we want to do is get out of recession, get economic growth back into our country, get back into the markets, pay our way and recover economic sovereignty."
Investors reacted positively today to the overnight Brussels deal when European leaders delivered a long-awaited action plan to tackle the eurozone debt crisis.
The €440bn (£388bn) european financial stability facility will be used to insure part of the losses on the debt of vulnerable countries such as Italy and Spain, rendering its firepower equivalent to €1trn.
It means that, coupled with an earlier decision to recapitalise vulnerable banks, the summit has delivered on the package it promised, although how it is hammered out remains to be seen.
Taoiseach Enda Kenny this morning welcomed the deal, saying it would create a more stable eurozone which will be hugely beneficial to Ireland.
"This deal has been achieved without any damage to Irish interests and it has recognised the progress Ireland has made.
"It allows a much improved environment in the eurozone with stability for the euro and therefore an improved environment for Ireland to do its business," he said.
After the summit, EU president Herman Van Rompuy said the deal would reduce Greece's debt to 120% of its GDP in 2020.
He added that the eurozone and IMF would give the country another €100bn.
French president Nicolas Sarkozy said the agreement would "give a credible and ambitious overall response to the Greek crisis".
The text of summit conclusions refers to the bailout fund being leveraged "several fold" - leaving plenty of scope for jittery markets to question the value of its increased firepower in tackling existing and future economic problems in the single currency area.
"The leaders were determined that there should be at least one firm figure in the outcome" said one insider.
"That is the 50% write-down on Greek debt to ease the Greek burden."
Reluctant banks had offered 40%, but German chancellor Angela Merkel and Mr Sarkozy insisted that the sector had got off relatively lightly in the crisis so far, with taxpayers bearing the brunt of bailouts.
Now, they said, banks should be prepared to forgo a significant level of Greek repayments to help ease the crisis.
The recapitalisation scheme does not involve UK banks, but forces many European banks to increase their reserves by more than €100bn.
Debt crisis deal: what does the rescue plan really mean?
More firepower to bailout fund
- The €440bn (£388bn) European Financial Stability Facility (EFSF) will have between €250bn and €275bn available after providing aid to Greece, Ireland and Portugal.
- Leaders say the fund's firepower could be quadrupled to around €1 trillion using a combination of a special purpose investment vehicle and a debt-insurance scheme.
- A state-sponsored insurance scheme would ensure a buyer of bonds would get a payout if a country were to default
- The size payout is still to be negotiated but there have been suggestions of the first 20% of any loss. For eurozone leaders, this guarantee will encourage otherwise reluctant investors to buy government bonds.
- Setting up a special purpose investment vehicle should give foreign investors a less risky way to buy eurozone debt.
Reducing Greek debt
- Private banks and insurers have agreed to accept a nominal 50% cut in their Greek government bond investments. It is hoped this will help reduce Greece's debt burden by €100bn, cutting its debts from 160% of GDP to 120% of GDP by 2020.
- At the same time, the eurozone will offer €30bn of 'sweetners' to the private sector.
- They hope to raise confidence in the banking sector by (i) facilitating access to term-funding through a co-ordinated approach at EU level and (ii) the increase in the capital position of banks to 9% of Core Tier 1 by the end of June 2012.
- The aim is to complete negotiations on the package by the end of the year, so that Greece has a full programme in place before 2012.
Stricter policing of euro fund
- A significant strengthening of economic and fiscal co-ordination and surveillance.
- A mandate to identify possible steps to strengthen the economic union, including exploring the possibility of limited Treaty changes. A report will be finalised by March 2012.