THE EURO-ZONE rescue fund is likely to postpone its next bond sale for Ireland’s EU-International Monetary Fund bailout until the standoff over the interest rate on the Irish loans is settled.
The rethink by the European Financial Stability Facility (EFSF) also reflects the fact Dublin has no immediate need for new loans from the fund. The Government’s cash balances are strong at the moment, meaning it must pay interest on money it is not spending.
As a result, Dublin is understood to have signalled to its sponsors that it would prefer to run down the cash balances before receiving new bailout loans.
The EFSF, controlled by the 17 euro-zone countries, first tapped bond markets for funds for the Irish bailout in January. This was its first bond sale: the Greek rescue, agreed six months before Ireland’s, is being managed by a separate ad hoc fund.
The EFSF had planned to go to the markets again in the first half of the year and again in the second half, most likely by the end of the third quarter in September.
As the Government spars with France and Germany over corporate tax, however, the fate of Ireland’s campaign for an interest rate cut remains uncertain.
Although the fund has not definitively decided to pull back from a bond issue next month, such a development is now expected.
“The likelihood is more that it will probably be at a later stage,” said an informed source of the next bond sale. The source added, however, that the fund could quickly return to the market in the event of a pressing requirement for funds from the Government.
A fundraising of €3-€5 billion is likely when next the EFSF approaches markets.
Ireland is drawing loans both from the EFSF and from a separate fund controlled by the European Commission, the European Financial Stability Mechanism (EFSM). The EFSM is expected next week to raise up to €5 billion for the Portuguese and Irish bailouts, with most of the money going to Lisbon.
With Portugal facing a big bond redemption next month, the EFSF is likely to tap the market twice for its bailout before mid-July.
The EFSF raised a €5 billion five-year bond for the Irish bailout in January, a sale which enabled it to lend some €3.5 billion to the Government in February.
The fund’s rules mean it must borrow more on the back of guarantees from euro-zone countries than it lends on to bailout recipients.
