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"Don't expect E64bn gift from Troika"

Wednesday, September 05 10:39:03

The June 29 euro area summit has opened up the possibility of a restructuring of Ireland's legacy bank debt burden but don't expect a E64 billion gift from the Troika, Goodbody economist, Dermot O'Leary said today.

Technical discussions are on-going at the present time with a deadline of October set for initial agreement, he pointed out.

"Ireland achieved a breakthrough at the June 29 euro leaders' summit by getting a specific mention in the communique. However, details on what sort of deal Ireland may get are vague and there is room for disappointment in relation to the timing of any deal given the wider European issues," he said.

"The bond market has reacted positively in anticipation of a game changing deal, but suggestions that Ireland will receive a E64bn gift from Europe are wide of the mark. We believe that a deal in October will contain commitments in relation to restructuring promissory notes in IBRC and verbal agreement on future direct recapitalisation of the Irish banks. This would represent a step in the right direction, but the market may be disappointed by an absence of improvement in Ireland's gross debt position," said Mr O'Leary.

"The agreement provides an opportunity to correct the mistakes of the past, namely repaying senior bondholders in IBRC in full. The ECB must accept that it will be supporting Ireland's banking system for longer than it desires. For debt sustainability this must include a much slower pay down of ELA and may also involve a wider restructuring of the banking system by way of transfer of loss making tracker mortgages. However, this must be done in a way that does not lead to further questions about capital adequacy of the Irish banks."