Bonds News

UPDATE 2-ECB Noyer plays down chance of haircuts on euro debt

* EU agrees on outlines of permanent crisis mechanism

* Noyer excludes eventuality of bondholder “haircuts”

* Euro hits 2-month low with focus on Portugal, Spain

* ECB will keep non-standard steps as long as needed -Noyer

* FX reserve accumulation can harm economic policy -Noyer (Rewrites, adds details, direct quotes)

By Stanley White

TOKYO, Nov 29 (Reuters) - European Central Bank policymaker Christian Noyer on Monday brushed aside the possibility of investors taking losses on the value of sovereign bonds as talk of “haircuts” helped to push Ireland to accept an EU rescue package.

Speaking at a forum in Tokyo, Noyer said he was confident that a rescue package for Ireland would soothe jittery investors and bring down yield spreads to “more normal levels”.

Noyer made the remarks a day after the EU approved an 85 billion euro ($112 billion) rescue for Ireland and outlined a permanent system to resolve Europe’s debt crisis, in which investors could gradually share the cost of any future default. [ID:nLDE6AR03X]

“As far as I’m concerned, I exclude that there will be haircuts in the future,” Noyer told reporters.

“It will be a major objective of all members of EU to do everything necessary to be in a position to fully honour their debts in the future. I exclude this as an eventuality even if it’s legally possible.”

Finance ministers from the 16-nation euro zone, anxious to prevent market contagion from engulfing Portugal and Spain, unanimously endorsed an emergency loan package to help Dublin cover bad bank debts and bridge a huge budget deficit.

Noyer said Portugal’s public finances were improving as planned and that it was not possible to make generalisations about European countries whose public finances are in doubt.

“Europe has set up appropriate mechanisms with the IMF to support two countries who have taken tough measures to repair their public finances,” he said, referring to Ireland and Greece.

“There is no reason to doubt the recovery plans of the two countries. They have the approval of the IMF.”


Interactive timeline on the Euro zone crisis:

Europe debt struggle graphic

For a description of the EU safety net [ID:nLDE65718H]



With anxiety rattling bond markets, the Irish government had been under intense pressure to accept a bailout despite repeatedly saying in recent weeks it did not need one.

Noyer said the current crisis is not a crisis of the euro but a sovereign crisis. The euro EUR= fell to its lowest in two months against the dollar below $1.3200 on Monday as the market looked past the rescue package for Ireland to other euro zone economies and a euro zone crisis resolution mechanism.

Noyer, also governor of the Bank of France, said the ECB would keep its non-conventional lending measures in place as long as they were needed, but that the measures were temporary in nature.

The ECB next meets on Dec. 2, when it will say how much of its crisis support -- mostly ultra-easy loans for banks -- will remain in place beyond mid-January.

On currencies, Noyer said there would be benefits in separating the accumulation of currency reserves from managing exchange rates because a piling up of reserves can harm economic policy.

“The need for national reserves could be reduced if credible mechanisms exist to provide for the supply of official liquidity on a multilateral basis,” Noyer said.

“Hence, the current search for international safety nets which has taken first stage in G20.”

Finding ways to diversify countries’ international reserves away from the U.S. currency is a key part of French President Nicolas Sarkozy’s plan to sketch out a blueprint for a more stable monetary system during France’s year-long presidency of the Group of 20 nations, which began this month. [ID:nLDE6AB1M5]

France is taking over the presidency of the G20 after the Seoul summit, at which developed and emerging nations agreed to a watered-down commitment to watch out for dangerous imbalances, yet offered investors little proof that the world was any safer from economic catastrophe.

France is calling for ambitious plans to reform the international monetary order.

China has also called for use of the IMF’s Special Drawing Right as an alternative to the dollar as a reserve currency, but many experts are dismissive as they say the SDR is not a currency and only a synthetic in-house unit of account for the IMF. ($1=.7566 Euro) (Reporting by Stanley White; Editing by Edmund Klamann)