Sunday, March 27, 2011
Ireland to impose losses on junior debt
Unfortunately burden-sharing is coming too late to make a real difference in avoiding a (un?)controlled default though it could be useful as a propaganda tool for the Irish government when it will ask the population for more blood and tears. It will change absolutely nothing since it will not affect the senior debt.
Dublin wants to impose losses on banks’ senior unsecured bonds not covered by a state guarantee, which currently amount to over 16 billion euros, as part of a new deal with the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF).
“A sustainable and comprehensive solution for Irish banking that involves recapitalization but also involves an element of burden-sharing … That is certainly the outcome that the government is looking for,” Simon Coveney, minister for agriculture, told state broadcaster RTE.
Under an EU-IMF bailout agreed late last year Ireland can impose losses on banks’ junior debt, but the ECB is opposed to treating senior bondholders, which are ranked on a par with depositors, in the same fashion for fear of a contagion risk.
Ireland’s new government, elected in February, has said the state cannot afford the current EU-IMF bailout deal and European finance ministers will decide on what sort of concessions they can offer Dublin in coming weeks.
They are awaiting the results of fresh stress tests on Ireland’s banks, expected to show a capital hole of around 25 billion euros, on March 31 before deciding on any new deal.
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