UPDATE 1-Draghi tells Ireland must honour commitments

Wed Apr 4, 2012 10:41am EDT

* Says must keep to promissory note repayment schedule

* Use of bond to avoid cash payment was Irish operation

* Says Ireland has good chance of return to bond markets

FRANKFURT, April 4 (Reuters) - Ireland must continue to make payments on 27 billion euros ($36 billion) worth of high-interest IOUs on schedule, ECB President Mario Draghi said on Wednesday, but refused to be drawn on the likelihood of a deal to ease the country's funding burden.

Dublin has been campaigning for months to soften the terms of its bank bailout by replacing the promissory notes given mainly to the former Anglo Irish Bank with another instrument that would lengthen their maturity and cut their interest rate.

Questioned at the European Central Bank's post-policy meeting news conference, Draghi declined to speculate on the likelihood of a deal with the Irish government on the IOUs.

But said there should be no slippage on the current repayment schedule.

"We expect that future redemptions will be met according to the schedule to which the government has committed itself," Draghi said. "It is of the utmost importance that the commitments of the Irish state are met in line with standing contracts and agreements."

Ireland last week won some breathing space by avoiding the immediate payment of 3.1 billion euros due on the IOUs, which it issued to prop up two banks, settling the bill by issuing a 13-year bond instead of paying cash.

But Draghi said that deal, which involved part state-owned Bank of Ireland and the country's state run National Asset Management Agency (NAMA), was an Irish operation that did not directly involve the European Central Bank.

Draghi said he believed Ireland had a very good chance of returning to international bond markets when its EU/IMF bailout programme runs out at the end of next year.

He said he was confident Ireland would vote in favour of Europe's new fiscal treaty on May 31.

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