Minister for Finance Michael Noonan is seeking a meeting with European Central Bank president Jean-Claude Trichet as he attempts to avoid repaying a $1 billion (€711.4 million) debt owed by Anglo Irish Bank.
The Minister declared three months ago that the International Monetary Fund was supporting his effort to impose big losses on the holders of unguaranteed, unsecured senior bonds in Anglo. Such bonds are a form of loan raised by banks on international money markets to fund their own lending operations.
They enjoy the highest form of legal protection against default and the holders have no right to other Anglo assets if the debt is not repaid. Neither are these bonds covered by the State banking guarantee.
The Government believes the bondholders should not be repaid with taxpayers’ money, given the acute financial pressure on the State.
However, Mr Trichet has always resisted any move in this direction as the ECB fears it could undermine confidence in other fragile banks elsewhere in the euro zone.
With a big repayment looming on November 2nd, Mr Noonan wants to raise this question with Mr Trichet directly. The two men are likely to meet next week at a meeting of European finance ministers in Wroclaw, Poland.
Although the ministers’ meeting will be dominated by the expanding sovereign debt crisis, markets rallied yesterday after Germany’s highest court rejected a constitutional challenge to euro zone bailouts.
Mr Noonan has long made the point that it is appropriate to target unguaranteed senior bonds in Anglo and Irish Nationwide Building Society, now merged, as they are being wound down and are no longer functioning as banks.
However, the Minister’s position is made more difficult by a statement made in July by the leaders of the 17 euro zone countries when they moved to seek bailout costs from the holders of Greek sovereign debt.
Taoiseach Enda Kenny was a party to that statement in which euro zone leaders said the Greek case was unique. They went on to “solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature”.
The Government has previously imposed big losses on the holders of junior or subordinate bonds in Ireland’s banks which have lower legal protection against default.
The total amount of unguaranteed senior unsecured debt in Anglo and Irish Nationwide is roughly €3.8 billion. The next such repayment falls due on November 2nd, two days after Mr Trichet leaves office. A further €1.25 billion must be redeemed in January. The Minister, who claims support for his stance, has said the difficulty with the plan lies in the ECB’s attitude.
Asked whether Mr Noonan wanted to raise this issue with the ECB president, a Department of Finance spokeswoman said only that “he will probably meet Mr Trichet at the informal Ecofin in Poland next week”.
There has been no public sign of any change in the ECB’s position raising questions over the Minister’s prospects for success. Mr Trichet may set out his view today after a meeting in Frankfurt at which the bank is expected to hold interest rates steady.
The head of the ECB mission to Ireland, Klaus Masuch, reiterated opposition to burden-sharing with senior bondholders in July after reviewing the Irish bailout. Asked last night about the bank’s present stance, an ECB spokesman said he “kindly refers” to that statement by Mr Masuch.
Separately yesterday the chief of the euro bailout fund, Klaus Regling said Ireland was over the worst of its financial crisis.
