Business

Irish government wants bank bondholders to share pain

  • 28 March 2011
  • From the section Business
Man begging on streets
Image caption The Irish Republic has suffered one of the deepest recessions in Europe

The government of the Irish Republic wants to impose losses on some senior lenders to Irish banks to spread the pain of restructuring, a minister has said.

The agriculture minister, Simon Coveney, said he was looking for a solution to the debt crisis that involved "burden sharing".

That is believed to mean some bondholders being forced to accept a lower return than they signed up for.

Such a move would need EU approval.

It would also need the backing of the International Monetary Fund (IMF) and European Central Bank (ECB).

Those in favour of lowering returns to bondholders - sometimes known as giving a "haircut" - say it would ease the pressure on taxpayers.

The government is already able to impose losses on certain classes of bonds, known as junior bonds.

The Irish Republic's banks have been given EU and IMF support to the tune of 35bn euros (£31bn, $49bn).

'Sustainable' solution

This week they face a new "stress test" to see if they would be able to withstand another banking crisis.

It is not clear whether the Republic's banks will pass, or be found to be in need of another major bout of support.

The Irish government wants to impose losses on banks' 16bn euros in senior unsecured bonds that are not covered by a state guarantee, as part of a new deal with the EU, the ECB and the IMF.

On Sunday, Mr Coveney told the state broadcaster RTE: "A sustainable and comprehensive solution for Irish banking that involves recapitalisation but also involves an element of burden-sharing ... That is certainly the outcome that the government is looking for."

The ECB is opposed to cutting returns treating senior bondholders, which it fears may undermine investor confidence.

But the new government in the Irish Republic has said the state cannot afford the current EU-IMF bailout deal.

European finance ministers will decide on what sort of concessions they can offer in coming weeks.

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