Irish bondholders look safe for now — in the wake of the €80-90bn Irish bailout announced over the weekend. But it might end up being a rather short reprieve.
From David Mackie at JP Morgan:
As it stands, this support programme does not ease the pressure on Irish taxpayers, except to the extent it provides funding at a lower interest rate than otherwise. The only ways to alleviate the burden on Irish taxpayers is either for the Irish government to restructure debt (whether sovereign or bank) or for the rest of the region to give Ireland a fiscal transfer. Neither of those is on the table at the moment. But, this package is as much about alleviating contagion around the region as it is about providing direct support to Ireland. Whether it does that remains to be seen. From a fundamental macro perspective, we would stress that Ireland and Greece are in a very different solvency boat to Portugal and Spain.
Taxpayers are (suddenly) very important — and could end up holding the key to any future eurozone debt restructuring. Check out — for instance — Jean Claude Juncker quickly rolling-back on that German idea of sovereign investors taking haircuts.
Speaking at Sunday’s press conference he said:
“In the case of Greece, of Portugal and Ireland, in no way will there be for the time being and for the period until mid-2013 a private sector involvement.”
Or, a restructuring by any other name.
But “current circumstances” implies that it’s very much open to change…
… From CreditSights on Monday morning:
Comments that under the “current circumstances” bondholders will not face any losses before 2013 will provide some comfort to investors. But, we think that, circumstances will have been deemed to have changed if European taxpayers end up lending money that is used to repay bonds on a large scale (i.e. if Spain or Italy need assistance). What’s more the statement that bondholders in Greece, Portugal and Ireland debt are safe until 2013 may mean those countries are forced to concentrate their borrowing in short-dated instruments.
Italy? Spain? Perish the thought.
In the meantime though — the Ireland bailout has provided the country with an additional line of liquidity at the expense of the public sector (and remember it already had enough to sustain itself until mid-2011) while doing little to actually fix that solvency problem, at a cost to the private. Yet anyway.
Related links:
Juncker says private sector should be liable if had crisis role - Bloomberg BusinessWeek
Irish rescue deal must not repeat errors – FT