Bloomberg News

Ireland’s Noonan Says ECB Only Backstop to Prevent Contagion

November 02, 2011

(Updates with Noonan comment in second paragraph. See {EXT4} for more on Europe’s debt crisis.)

Nov. 2 (Bloomberg) -- The European Central Bank is now the only backstop in the region’s debt crisis and it should use a “wall” of money to continue to buy bonds to stop contagion spreading to Italy and Spain, Ireland’s finance minister said.

“The firewall which is part of the comprehensive solution to prevent contagion spreading to countries like Italy and Spain is not yet in place,” Michael Noonan said in an interview with Dublin-based RTE Radio today. “They need to go into the market and say ‘We have a wall of money here and no matter how much speculation there is, we’re going to keep buying Italian bonds or any other euro bonds that are threatened.’”

Noonan said the Frankfurt-based bank has no choice but to continue to buy bonds following Greek Prime Minister George Papandreou’s decision to hold a referendum on the bailout deal hammered out by European leaders last week. The ECB has to accept its responsibility to help prevent contagion spreading from Greece, he said.

Noonan said ECB President Mario Draghi is unlikely to cut interest rates in his first rate-setting meeting tomorrow. He said the bank may lower the benchmark rate in its subsequent meeting on Dec. 8 and called for a half-point reduction from the current 1.5 percent.

“I don’t think Mr. Draghi will cut interest rates at his first central bank meeting because it’ll look as if it was a criticism of his predecessor,” Noonan said. “We’re about three-quarters of a percent out of line, I think, and I hope that would come through between now and Easter.”

‘Disastrous’

Irish Prime Minister Enda Kenny said in an op-ed piece in the Irish Times today that a move to repudiate the country’s aid agreement and renege on its debts “would be disastrous” for its recovery. The government’s strategy is beginning to produce results and Ireland will grow, not default, Kenny said.

Ireland’s Finance Ministry said yesterday its 2010 debt was 3.6 billion euros ($4.9 billion) lower than previously estimated after it discovered an error in its accounts for the year. Noonan said he first learned of the mistake yesterday and while it won’t affect the country’s budget, it helps make the debt calculations more sustainable.

“From the Irish national-interest point of view, we want to make absolutely sure we have no association with Greek problem whatsoever, and are seen as a totally separate economy with a separate set of values more in line with the north European economies than with the Mediterranean economies that are in trouble,” Noonan told RTE.

--Editors: Andrew Atkinson, Eddie Buckle

To contact the reporters on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net; Finbarr Flynn in Dublin at fflynn3@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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