Euro-zone Debt Crisis Persists; Ireland Bailout Terms

Devan Biswas
29 Nov, 2010
New York City

European leaders and Ireland hammered out bailout conditions on late Sunday to stem the widening debt contagion in the euro-zone. Ireland agreed to tougher loan conditions and cut 15 billion in costs and interest rate of 5.8%.

[R]9:30 AM New York – European leaders and Ireland hammered out bailout conditions on late Sunday to stem the widening debt contagion in the euro-zone. Ireland agreed to tougher loan conditions and cut 15 billion in costs and interest rate of 5.8%.[/R]

Markets in New York and in Europe were on the edge as the euro-zone debt crisis persists.

Regulators and bankers rushed on late Sunday night to hammer out the details of Ireland bailout package that has left many with more questions.

Bankers and political leaders also agreed to loan funds to Ireland to stem the widening euro-zone crisis to Spain and spread the future costs of bailout to bond holders.

German proposal to automatically share the cost of additional bailout in 2013 was watered down and a more flexible approach was adopted that will involve the IMF and direct negotiations between nations and bond holders.

The European Union and the IMF agreed to a bailout of €85 billion or $113 billion to Ireland as it seeks capital to support its failing banking system.

Ireland agreed to pay 5.75% interest rate and Germany was seeking rates as high as 7.5% according to the sources in the European Central Bank.

European nations controlled funds will loan a total of €45 billion and the International Monetary Fund agreed to lend €22.5 billion. The remaining €17.5 billion will be provided by the Ireland controlled pension fund.

UK also agreed to directly lend €3.8 billion and additional funds into the IMF loan package with a total loan of €7.9 billion.

The central bankers and European regulators also agreed that future bailouts will involve bond holders but spared Irish senior bond holders this time.

The EU also extended to 2015 for Ireland to meet 3% budget deficit target from the current 32% deficit and also demanded and received €15 billion of additional government spending cuts.

Ireland was steadfast in its demand to protect bond holders in Irish bank debts and the European Commissioner for economic and monetary affairs, Olli Rehn said there will be no “haircuts.”

The weekend agreement failed to calm debt markets and yields on sovereign debts of peripheral nations traded at elevated levels in London and in Frankfurt.

Yields on 10-year Irish bonds hovered in the early afternoon just below 8.93%, on Portuguese bonds at 6.77%, on Spanish bonds at 5.3% and on Italian bonds at 4.5%.

Greek 10-year bonds declined to 11.51% and EU officials said that the nation will be given additional time to repay EU loans and the period will be extended from the current two-and-a-half years to seven year matching the debt repayment time given to Ireland.