February 15, 2011 / 2:14 PM / 9 years ago

Irish opposition party softens tone on bank debt

DUBLIN, Feb 15 (Reuters) - Ireland’s main opposition party withdrew on Tuesday a previous threat to unilaterally restructure bank debt if it wins power, as expected, this month in an election dominated by a controversial EU/IMF bailout.

The centre-right Fine Gael party’s election manifesto said imposing losses on senior bondholders in Irish banks would only be extended as part of a European-wide framework and would focus on state-run lenders Anglo Irish Bank [ANGIB.UL] and Irish Nationwide [IRNBS.UL], which are being wound down.

In its banking strategy published earlier this month, Fine Gael warned that if some of its proposals for dealing with the banking crisis were not implemented it could unilaterally impose losses on unguaranteed senior bonds, estimated at around 15 billion euros. [ID:nLDE71318V]

“I don’t think there has been a particular softening of our position on banking and on burden-sharing,” Michael Noonan, Fine Gael’s finance spokesman and a likely contender to be finance minister after the Feb. 25 poll, told a news conference.

“It might be slightly more nuanced.”

Ireland’s opposition parties are campaigning to renegotiate the 85 billion euros rescue package and imposing losses on bondholders is a popular policy amid growing resentment that taxpayers are being forced to bear the burden of the bailout for the benefit of European banks, which have big exposures to Irish debt.

Irish banks are already restructuring their junior debt but the European Central Bank (ECB), which is keeping the lenders alive with emergency funding, is against restructuring any higher ranked senior debt for fear of contagion risk.

Last week, credit ratings agency Moody’s cut the senior unsecured debt rating of Allied Irish Banks ALBK.I, Bank of Ireland BKIR.I, EBS Building Society [EBSBS.UL] and bancassurer Irish Life & Permanent IPM.I as a result of the opposition parties’ views.

The credit ratings agency said any attempt to impose losses on senior creditors would make it harder to wean Ireland’s banks off funding support from the ECB and the Irish central bank.

Noonan reiterated that unless the average 5.8 percent interest rate on the EU’s 40 billion euros plus worth of loans was reduced then the bailout could tip Ireland’s banks over the edge.

“Unless the bailout package is made more affordable there is a high risk that without anyone taking a policy decision that banks could run the risk of defaulting in Ireland.”

The European Union’s top economic official Olli Rehn said on Monday that there was some scope for adjusting the terms of the bailout but not immediately.[ID:nLDE71D1ZK]

Reporting by Carmel Crimmins; Editing by Ron Askew

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