DUBLIN--Granting euro-zone countries access to the bloc's new
bailout fund to retroactively finance ailing banks may be of only
limited benefit to Ireland's government, analysts said Friday.
Ministers meeting in Luxembourg Thursday left the door open to
the possibility that euro-zone countries like Ireland, that have
pumped in huge sums to keep their banks from collapse over the last
five years, could retroactively tap the European Stability
Mechanism.
But the strict criteria set by euro-zone finance ministers on
Thursday for access to the ESM, including capping the amounts
available for all euro-area banks at 60 billion euros ($79.4
billion) raises serious doubts whether Ireland could realistically
hope to tap fund at all, said Dermot O'Leary, chief economist at
Goodbody Stockbrokers. "I am very skeptical that there is support
in core Europe for retrospective financing," he said.
Ryan McGrath, senior bond trader at Cantor Fitzgerald Ireland,
said that the potential funds available for direct bank
capitalization was just too small.
Ireland has long waged a campaign to persuade its fellow
euro-area governments to allow it tap the ESM to refinance as much
as possible of its huge bank-rescue sums, saying that the principle
of potential retroactive capitalization of banks would be
significant in its measures to deal with the crisis.
The Irish finance ministry gave a guarded welcome Friday. Had
the principle of retroactive capitalization not been included, "it
would have been a bad day for Ireland," Brian Hayes, deputy finance
minister told Irish broadcaster RTE Radio. Ireland would assess
whether to apply for retrospective funding for its banks through
the ESM, but only when the details are worked through, he said.
Ireland pumped in over EUR30 billion into Allied Irish Banks PLC
(ALBK.DB), Bank of Ireland PLC (BIR.DB) and Permanent TSB (IL0.DB)
to keep them from collapse during the crisis. The lenders continue
to be loss-making and struggle with large amounts of troubled home
and business loans, a legacy of the country's deep property market
crash.
Ireland clinched a deal with the European Central Bank in
February for the government to refinance a large chunk of
approximately EUR32 billion the country injected into so-called
dead banks, including Anglo Irish Bank Corp., by issuing Irish long
term bonds.
The IMF, in its latest review of Ireland's bailout, Wednesday
urged the euro-area authorities to provide Ireland will help for
its legacy bank debts, saying the ESM remained the best way of
doing this.
Write to Eamon Quinn at eamon.quinn@dowjones.com
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