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Format Of Irish Bailout 'A Mistake'

Monday, June 11, 2012 17:02

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A former special advisor at the Department of Finance, Dr Alan Ahearne, has described the format of the Irish bailout deal as a mistake.Speaking on RTÉ’s Morning Ireland, he said it would have been better if the bailout funds had gone directly into the Irish banks and not been given to the State to put into the banks.

“It was a mistake. The Irish authorities in negotiations for the programme did want the new injections into the Irish banks to go directly, not to go to the Irish state,” said Mr Ahearne.

Dr Ahearne said the Spanish bailout deal is very similar to Ireland’s programme in that money has been lent to the Spanish government to be put into its viable banks.

He said it differs to the Irish one in that the Spanish government has not received a separate pool for state funding.

Instead the government is hoping to fill the gap in its deficit by borrowing from the markets.

After an emergency video conference on Saturday, eurozone finance ministers issued a statement saying they were “willing to respond favourably” to a Spanish plea for help.

The deal, which allows Spain to borrow up to €100 billion, was hailed by Germany, France, Japan, the US and the International Monetary Fund.

The market reacted positively to the announcement this morning, with the euro gaining in early trading.

However, dealers said the euro’s gains were unlikely to last as the Spain deal was not a comprehensive solution to wider regional problems, especially given rising uncertainty ahead of Greek elections on 17 June.

Dr Ahearne said Spain is hoping now that sentiment improves and that it can get the cost of borrowing down.

He said anybody buying Spanish bonds was taking a gamble on the losses in the Spanish banks and that this would put off investors.

Investor concerns have weighed on the euro with tensions high over fears Athens may exit the bloc following the polls. The unit has tumbled to multi-year lows against the dollar and yen in recent weeks.

Dr Ahearne said it would have been good for Ireland if Spain had been given different terms for its bailout, because then Ireland would have been able to apply for those same terms.He said that if Spain had managed to get a direct injection of funding into its banks, then Ireland would also have been able to.

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