Ireland Snubs ECB Effort to Avoid Meltdown With Threat to Bank Bondholders

Ireland opened a new front in the drive to restructure debt on the euro area’s periphery, adding to the European Central Bank’s concerns as it tries to head off another wave of financial turmoil.

Irish Finance Minister Michael Noonan said yesterday that senior bondholders should share in the losses of Anglo Irish Bank Corp. and Irish Nationwide Building Society, reversing a policy of protecting owners of senior securities. The ECB is against imposing losses on investors. President Jean-Claude Trichet said on Feb. 7 that haircuts aren’t part of a plan to reduce Ireland’s debt load.
Ireland’s about-face on bondholder involvement in its banking crisis comes as European lawmakers struggle to settle a dispute over how to avoid a Greek sovereign default. While German Finance Minister Wolfgang Schaeuble said last week that Europe’s biggest economy insists on the participation of the private sector, his French counterpart Christine Lagarde has ruled out any action that constitutes a “credit event,” backing the ECB’s view.
“Noonan must be kidding,” said Klaus Baader, an economist at Societe Generale in London. “It’s not so much money-saving as a way of Ireland trying to improve its bailout terms, just as the Eurogroup is focused on Greece. Naturally, it means investor stress and increases pressures on bank funding. The ECB won’t take this particularly seriously, but the annoyance factor is extremely high.”
The Frankfurt-based ECB, which sets monetary policy for the 17 nations sharing the euro, declined to comment.

http://www.bloomberg.com/news/2011-06-16/ireland-snubs-ecb-effort-to-avoid-meltdown-with-threat-on-bank-guarantees.html