Irish government sees opportunity from Greek crisis

DUBLIN Sun May 8, 2011 1:45pm EDT

A souvenir shirt hangs in the window of a shop on Grafton street in Dublin March 31, 2011. REUTERS/Cathal McNaughton

A souvenir shirt hangs in the window of a shop on Grafton street in Dublin March 31, 2011.

Credit: Reuters/Cathal McNaughton

DUBLIN (Reuters) - Ireland's government is watching to see what concessions it can win on its EU-IMF bailout if Greece is given a new deal to resolve its worsening debt crisis, a senior government minister said on Sunday.

"The thing I am interested in is whether there are positive implications for Ireland about dealing with the situation the Greek government now confronts," Minister for Energy Pat Rabbitte told state broadcaster RTE.

"The Irish government intends for the duration of the programme to continue to negotiate improvements and to take advantage of developments elsewhere in the hope that there will be a multilateral approach to renegotiating (the) bailout."

Rabbitte, a former leader of junior coalition party Labour and once seen as a contender for the position of finance minister, also said that he would like to see a rescheduling of debt issued to Ireland under its 85 billion euros ($118.7 billion) rescue package.

"Quite frankly the (interest) rate on Ireland must be reduced and in my own view the debt must also be rescheduled but that's another issue," he said.

He added that he hoped Ireland would win a 1 percentage point cut in the interest rate it is paying on some 40 billion euros of loans from the EU at a meeting of EU finance ministers.

"I hope that the next meeting of Ecofin on the 16th and 17th of this month will be able to sign off on a reduced interest rate for Ireland."

There is a growing acknowledgement that Greece needs a new economic plan to tackle its deteriorating debt crisis and top euro zone finance ministers gathered in Luxembourg on Friday night to consider possible options.

A new plan may include pushing back Greece's budget targets, easing the terms of its 110 billion euros international bailout, giving it additional aid and a mild restructuring of its sovereign debt, official sources and analysts say.

DOCTOR DOOM

Irish officials insist that the country's debt burden, expected by the IMF to peak at 125 percent of Gross Domestic Product (GDP) in 2013, is sustainable.

A leading Irish academic economist wrote in The Irish Times newspaper on Saturday that the country's debt would hit 250 billion euros by 2014, bringing Ireland's debt-to-GDP dynamics closer to that of Greece, where debts are expected to reach 158 percent of GDP in 2013.

Morgan Kelly, dubbed Ireland's "Doctor Doom" for his gloomy but so far scarily accurate predictions for what's around the corner, said the country faced bankruptcy because of the EU-IMF bailout.

Kelly's article and its criticism of Ireland's central bank governor Patrick Honohan, who he accused of putting the European Central Bank's (ECB) interests over Ireland's, prompted Honohan to give an interview to the state broadcaster defending his actions and Ireland's outlook.

Honohan, who has previously called for the creation of GNP-linked bonds or similar risk-sharing innovations to help improve Ireland's debt dynamics, admitted Ireland's growing debt burden was a problem, but said it could be managed in discussions with EU partners.

"The fact of the heavy debt and the growth of that debt is a serious problem and needs to be managed in discussion and in negotiation with our European partners," he said.

"This (the bailout) is a holding operation. We are keeping our options open. We have a number of cards, we don't have many cards in these negotiations, there is the right time to play your most important cards," he said.

Honohan reiterated on Sunday that the sustainability of Ireland's debt depended on its economic growth prospects.

"If things don't go well in terms of economic growth it will be much more difficult ... in that case there will be a problem and in order to cope with that situation we need to think of better financial arrangements with Europe," he said.

"We need to think of risk-sharing arrangements that would ensure that the growth will come right."

He also dismissed Kelly's predication, based on including the debts of the country's "bad bank," bank capital injections and losses incurred by the central bank on its emergency loans to Irish banks, that the national debt will balloon to 250 billion euros.

"If it gets to a quarter of a trillion he is probably right that it would be unsustainable. (But) There are obviously a number of errors in the way that he has put the numbers together or at least would require a lot of footnotes to justify them."

($1=.7158 Euro)

(Editing by Hans Peters; Editing by Hans Peters and Maureen Bavdek)

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