Luck of the Irish

4 Jul 2012 By Neil Unmack, Hugo Dixon Follow @unmack1

Last week’s euro summit dangled a big carrot: that Dublin’s punishing bank bailout which brought the country to its knees may be rejigged. Irish bond yields are now as low as Spain’s. But much detail needs to be agreed, leaving scope for disappointment.

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Euro zone leaders pledged on June 28 and 29 to review the terms of Ireland’s bank bailout, as part of a broad attempt to break the “vicious circle between banks and sovereigns”.
They said that the euro bailout fund, the European Stability Mechanism, could be used to recapitalise banks directly once an effective single supervisor for zone’s lenders had been established. They also said the region’s finance ministers would “examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme.”
Irish 10-year bond yields fell approximately 80 basis points to 6.3 percent, between the announcement on June 29 and midday July 4.
Patrick Honohan, governor of the central bank of Ireland hinted that the euro zone summit could pave the way for a prompt restructuring of the Irish Bank Resolution Corporation, a bad bank that houses the former Anglo Irish Bank.
“The lack of any explicit commitment to long-term low cost financing of IBRC’s cash needs no doubt has represented one of the obstacles to Ireland regaining market access on the necessary scale in the immediate future,” Honohan said at conference on June 29. “With last night’s summit statement, it may not be unrealistic to hope that this important loose end can be tied-up relatively soon.”

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