Ireland insists bank debt deal still on as yields rise

Wed Sep 26, 2012 7:40am EDT
 
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By Padraic Halpin

DUBLIN (Reuters) - Ireland insisted on Wednesday that a pledge by European leaders to ease the terms of its bank bailout stands but doubts cast by three powerful EU finance ministers appeared to dash hopes of a broad deal and pushed Irish borrowing costs higher.

Germany, the Netherlands and Finland issued a joint statement that seemed to unravel much of what was agreed at a European Union summit in June, when leaders paved the way for the direct recapitalization of problem banks.

The trio made a sharp distinction between future banking problems and "legacy" issues, dealing a potentially fatal blow to Dublin's hopes of selling stakes in its viable lenders to Europe's new rescue fund and limiting its options on easing the burden placed on it by failed banks.

"This is not a decision of just three ministers or any other commentators, this is a decision made by the heads of government of the 27 countries of the European Union," Prime Minister Enda Kenny told parliament.

"The difficulty for Europe has always been that you follow through on the decisions that were made. The decision of June 29 was not an opinion, was not a theory... Those decisions stand, those decisions will be implemented."

In June Kenny called the agreement reached by EU leaders a "seismic shift" in policy and with Ireland's costly bank rescue set to push government debt to around 120 percent of gross domestic product (GDP) next year, it needs Europe to deliver.

While Dublin has been chiefly focusing on trying to change the punishing repayment terms associated with recapitalizing two failed, state-owned banks, it hoped to retrospectively benefit from the proposal to allow the euro zone's permanent rescue fund, the ESM, to recapitalize at-risk banks.

Ireland had said that if the ESM was to take over its stakes in the mostly state-run banking sector, it would need to do so at prices significantly above their current low valuations, meaning there was no guarantee it would take up the option.   Continued...