COPENHAGEN, March 31 (Reuters) - The European Central Bank cut Ireland no slack on its push to reschedule payments on 27 billion euros worth of high-interest IOUs, leaving Dublin to lobby other lenders that mounted a rescue to ease the pain of its bailout cost.
Debt-laden Ireland is seeking to reschedule the repayment of the IOUs, which it issued to prop up two banks, to lighten the burden of interest payments and boost its chances of returning to bond markets next year.
Ireland struck a deal on Thursday to avoid immediate payment of 3.1 billion euros due, settling the bill by issuing a 13-year bond. Dublin now wants a similar deal on refinancing the remaining 27 billion euros of the IOUs - or promissory notes.
The previous Irish government issued the notes to Anglo Irish Bank and home lender Irish Nationwide, now merged and known as the Irish Bank Resolution Corporation (IBRC), to help them access emergency funds from the Irish central bank - part of the ECB’s Eurosystem - to repay private bondholders.
IBRC is kept afloat with emergency loans - known as Emergency Liquidity Assistance (ELA) - from the Irish central bank. This arrangement requires the approval of the ECB.
The ECB signalled it could accept no slippage in the repayment schedule, saying in a statement issued on the eve of a weekend meeting of European finance officials that: ”It is of utmost importance that the commitments of the Irish state are met in line with standing contracts and agreements.
“The Eurosystem (of euro zone central banks) has provided unprecedented support for the Irish banking sector,” the ECB added. “The objective should be to reduce over time the reliance of Irish banks on central bank funding and in particular on the Emergency Liquidity Assistance.”
One possibility for Ireland could be to try to convince other euro zone countries members to allow it to tap the European Financial Stability Facility (EFSF), the euro zone’s bailout fund, to reengineer the debt payments.
Irish Finance Minister Michael Noonan alluded to this possibility at the meeting of in Copenhagen but added that it would be of little use “unless we got the commitment to ongoing medium-term low-cost funding from the ECB”.
The problem for Ireland is the ECB believes that this assistance, or ELA, should only be provided on a temporary basis. Doing so on a longer-term basis could be seen by the ECB as monetary financing - or using central bank money to fund governments, which is forbidden by European Union law.
When asked if the ECB could be flexible about rescheduling the promissory note payments, Bundesbank chief Jens Weidmann - a hardline ECB policymaker - said on Saturday “the impression cannot arise that the ban on monetary financing can be circumvented here.”
“If this is a normal, reasonable market process, then I have no problem with it. Otherwise, it looks difficult to me.”