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Cost of Irish borrowing rises after Germans, Finns and Dutch reject plan

September 26, 2012 Irish Independent
The cost of borrowing for Ireland rose this morning after the finance ministers of Germany, Finland and the Netherlands said they do not want a new €500bn fund to pay for the cost of rescuing Irish banks in the past.

Yields on nine-year bonds gained 12 basis points to 5.17pc despite assurances from Taoiseach Enda Kenny and other ministers who all said this morning that a deal is still on the table.

“The suspicion has been there since 29 June that the interpretation put on the EU statement by the Irish government and some other commentators was not what some of the core countries meant,” bond expert Neil Carroll of Goodbody’s wrote in a note to clients this morning.

“This has been confirmed overnight in the statement by the German, Finnish and Dutch Finance Ministers that only future bank bailouts could be assisted by the ESM and only when all other sources of funding had been exhausted.”

Yesterday’s statement by the three ministers was seen as a blow to the Government’s hopes of some sort of deal on bank debt.

The Government failed to get the matter discussed at a crucial finance ministers meeting earlier this month and sources now suggest that it might try and issue a 40-year-bond instead to reduce the cost of the so-called promissory notes which cover the cost of bailout Anglo Irish.

“For Ireland, a deal on the Anglo promissory notes with maturity shoved out to say 40 years for a reasonable annual interest rate level is still possible and is probably as much as can be hoped for in the near term, Mr Carroll added.”

But Mr Kenny said a debt deal still stands despite the statement.

He said a "clear and unequivocal" decision was made by EU leaders at a summit at the end of June.

The European Council decided to break the link between sovereign and bank debt, along with improving Ireland's debt sustainability.

"Those two decisions stand. Those two decisions will be implemented," he said.

Fianna Fail leader Micheal Martin said the statement from the three finance ministers was "disappointing and extremely depressing".

"Clearly the grass has grown under your feet since the June summit," he said.

Independent TD Shane Ross said the three most powerful economies in Europe were pulling the plug on the deal.

"This is a disaster for the attempts to get out of debt and rescue the pillar banks," he said.

But Mr Kenny said the statement was only from three ministers out of 27 EU countries.

"The decisions of the 29th of June is clear and unequivocal," he said.

The European Commission also said the political agreement reached by eurozone leaders in June was "quite clear" on the European Stability Mechanism and bank debt, despite the comments by the three European finance ministers.
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