Bloomberg News

Citigroup’s Buiter Says Irish Need Aid Concessions or PSI

January 09, 2012

(Updates with additional comments starting in third paragraph.)

Jan. 9 (Bloomberg) -- Citigroup Inc. Chief Economist Willem Buiter said Ireland needs its European partners to restructure part of the country’s bank bailout bill or it may have to follow Greece’s lead in making investors take losses on its sovereign debt.

“There clearly will be a need for either some form of official concessions on the terms and conditions of its financing or PSI,” he told reporters in Dublin today, referring to private-sector losses on bonds. “Ireland’s deficit position is bad.”

Buiter said a refinancing of 30 billion euros ($38.2 billion) of so-called promissory notes that Ireland used to recapitalize Anglo Irish Bank Corp., recently renamed Irish Bank Resolution Corp., at a rate of about 3 percent through the euro region’s bailout fund would “be a material help.” It “would also politically show a recognition of Ireland’s extraordinary efforts to get its fiscal house in order.”

As the bill for the bank soared in 2010, the previous government decided to hold off injecting all the cash into the bank straight away. Instead, it promised to give the cash over 10 years, by issuing promissory notes at an interest rate of about 8 percent to the lenders for the full amount. The government has introduced almost 24 billion euros of budget cuts since the economy went into a recession in 2008.

Irish Bailout

Ireland sought a 67.5 billion-euro bailout from the International Monetary Fund and the European Union in 2010, and the new government is seeking to refinance the notes used to recapitalize Anglo Irish, which is being wound down, on better terms and over a longer period with its partners.

“Ireland is not Portugal, nor is it Greece, but it is, because of the bank debts from September 2008, in very bad fiscal shape,” said Buiter. “I think the politicians and European partners will pursue the option of more generous funding terms before they get to sovereign-debt restructuring.”

Buiter said Portugal, which also received a bailout, “may well have to engage” in a “material restructuring” of its sovereign debt.

Greece is on track to complete the outline for a debt swap agreement around Jan. 16, when talks on a second aid agreement with EU and IMF officials start in Athens, a finance ministry official said last week.

Buiter said the agreed discount on privately held debt is unlikely to restore Greece’s solvency. Even if Greece’s rescuers absorbed similar losses on their official funds “it probably wouldn’t be enough,” he said.

“In the end, the IMF is likely to be the only creditor to walk away from the Greek sovereign with any significant recovery,” he said.

--Editors: Fergal O’Brien, Jennifer M. Freedman

To contact the reporter on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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