Irish bondholder threat

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 $49
billion.

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’ $23 billion 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.

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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