Ireland is lobbying EU/IMF lenders for additional support to smooth its return to bond markets before its bailout ends next year, its finance minister said on Thursday after Dublin passed its latest bailout review.
The country is the closest to recovery of the euro zone bailout recipients and will be hoping European leaders’ appetite for a success story will outweigh a reluctance by Germany and its allies to offer up more funds.
The Irish debt agency has made a tentative return to the bond market in recent months but needs to boost investor confidence so that it can make a full market return before the bailout expires at the end of 2013.
Finance Minister Michael Noonan suggested additional support could include a pledge of more funds or access to the European Central Bank’s bond buying program.
“What we want to see is the range of possible options that would be there on exiting the program,” Mr. Noonan told a press briefing.
“Obviously one of them would be a statement from Mr. [Mario] Draghi that Ireland could avail of the bond intervention,” he said, referring to the European Central Bank’s new Outright Monetary Policy scheme.
He said there would be “no second bailout” but said he expected a range of funding options from its lenders.
A European Central Bank statement that the new bond-buying program was available would have an “immediate impact on our bond spread,” Deputy Finance Minister Brendan Howlin said.
Mr. Noonan said access to the bond-buying progam could knock up to 200 basis points off a country’s borrowing costs.
Ireland’s troika of lenders from the EU, IMF and ECB, in a statement, said the country had passed its latest bailout review. They praised Dublin for meeting its fiscal targets, but warned that the external trading environment posed a risk to the export-oriented economy.
Mr. Noonan said official support would help the government to tap bond markets over the coming year to build up a €17-billion ($22-billion U.S.) buffer against external shocks.
The government was likely to mark down its growth forecasts for 2013 next week, he said, but did not expect this to effect its fiscal targets. The government currently expects GDP growth of 2.2 per cent next year.
The International Monetary Fund on Thursday cut its forecast for Ireland’s 2013 GDP growth, to 1.1 per cent from 1.4 per cent citing weaker international demand. It said a deal to allow Europe’s new bailout fund, the ESM, to directly capitalize Ireland’s banks was “critical” to Ireland weaning itself off official funding.
“Disappointing market expectations could risk Ireland needing ongoing reliance on official financing. That would miss an opportunity for a much-needed success in Europe,” IMF’s Ireland mission chief Craig Beaumont said in a conference call.
Dublin is exploring two avenues in talks with the European Commission and ECB to ease the burden on state finances from its failed banks. They are a retroactive direct investment by the ESM in “good banks” and a restructuring of €31-billion in promissory notes used to recapitalize the former Anglo Irish Bank, now called the Irish Bank Resolution Corporation.
The government hopes to secure a deal on the promissory notes by their next payment, due next March. However, it has been struggling to secure support for ESM investment given German opposition to allowing the fund to cover such “legacy debts.” Chancellor Angela Merkel has acknowledged though that Ireland is a special case.
ESM ownership of stakes in Irish banks would cut their cost of funding, further boosting the Irish economy, Mr. Beaumont said.
Ireland has taken advantage of a sharp fall in its borrowing costs by launching two bond swaps, its maiden amortizing bond issue and new long-term debt sales, in a bid to position itself to exit its bailout on schedule.
Yields on Ireland’s benchmark 2020 bond were 4.76 per cent on Thursday well below the 7.5 per cent hit in May.