Monday, April 18, 2011

Ireland's Kenny Seeks to Reassure Markets

Ireland's Kenny Seeks to Reassure Markets : Irish Prime Minister Enda Kenny stepped up his diplomatic offensive during his first state visit to London on Monday, seeking to reassure the markets that his government is serious about tackling its budget deficit and that it will not consider defaulting on its debt.

Mr. Kenny's efforts to soothe investors' concerns came as fresh doubts surfaced that Greece will not be able to avoid a debt restructuring, despite denials by the Greek government.

Yields on Greek two-year and five-year bonds rose above 18% for the first time since the introduction of the euro after it emerged that Greece had proposed extending repayment of its debt by as much as 30 years.

The market concerns about Greece also spread to other peripheral euro zone countries, with Irish, Portuguese, and Spanish yields also rising Monday.

Mr. Kenny worked hard to differentiate Ireland's situation from Greece's, reiterating during a number of television and radio interviews Monday that Ireland had no intention of causing "mayhem" in the markets by defaulting on its debt.

"We've made that perfectly clear. We want to continue to pay our way," Mr. Kenny said during an interview on Bloomberg Television.

During a speech to investors in central London, Mr. Kenny said he was confident Ireland would meet the obligations of its multibillion-euro emergency loan package, adding that the government would continue to push for lower interest rates.

Ireland received €67.5 billion from the European Union, the International Monetary Fund and European Central Bank last November at an interest rate of nearly 6% after being shut out of debt markets by sky-high borrowing costs.

Mr. Kenny, who won power in a February general election, has pledged to secure a lower interest rate on Ireland's loans from the EU.

However, he reiterated that the country wouldn't accept any adjustment in its low corporate tax rate, saying it would be "utterly self-defeating" and damage the prospects for the recovery.

"We will maintain Ireland's 12.5% rate of corporation tax, which is a longstanding and necessary part of our enterprise strategy," he said.

Mr. Kenny also emphasized that Ireland was working hard to rebuild its reputation both within the European Union and beyond.

He said all ambassadors from European Union countries were called Monday to the Department of Foreign Affairs in Dublin to hear details of the Irish government's strategy to reduce its debt and restore market confidence in the country.

The Irish prime minister also met with U.K. Prime Minister David Cameron on Monday to discuss Queen Elizabeth's state visit to Ireland next month and economic matters.

Following the meeting, Mr. Kenny said the two men had not discussed lowering the interest rate on the £3.25 billion loan the U.K. gave Ireland last year. Ireland is estimated to pay interest of around 5.9% on the loan.

Mr. Kenny's efforts to restore market confidence were damped by Fitch Ratings, which on Monday said that Ireland's solvency is fragile and there are significant threats to both its economic recovery and the government's ambitions for fiscal consolidation.

Fitch said it expects Ireland's debt to peak at 116% of gross domestic product in the financial year that ends in 2014. The ratings agency said Ireland's financial position will mean it will have little flexibility to respond to future crises, shocks from the world economy or the demands of its aging population.

"Fiscal discipline will need to be maintained over several years to bring public debt down to safer levels," Fitch said. However, it added GDP growth of 3% a year, which it said wasn't unreasonable, would reduce Ireland's debt burden to 87% of GDP by 2020.

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