LONDON (MNI) – European Central Bank Governing Council member
Patrick Honohan has said that linking Ireland’s share of repayments of
bonds issued by the European Financial Stability Facility to its gross
national product would help stabilise the country’s debt dynamics.
In an op-ed piece in the Financial Times, the head of the Central
Bank of Ireland said that a simple version of the proposal would involve
Ireland paying more if its GNP growth was strong, and less if it was
weak.
“One dimension which, in my personal view, has not yet received the
attention it deserves is the potential for mutually beneficial
risk-sharing mechanisms. A variety of financial engineering options
could be considered going beyond the plain vanilla bonds currently
employed,” Honohan wrote.
“A simple version, which could indeed be useful beyond the specific
case of Ireland, would, over time, shape the arrangements with European
partners in such a way that Ireland pays more if its GNP growth is
strong; less and slower if growth remains weak,” Honohan wrote.
“The aim of such GNP-linked bonds or similar risk-sharing
innovations must be to restore, through growth, a favourable dynamic to
the sovereign debt ratio, putting its sustainability too, like that of
the banks, beyond doubt,” added.
Honohan’s comments follow calls from Ireland’s new Fine Gael/Labour
coalition government to secure cheaper emergency financing from the
EFSF.
Standard & Poor’s Ratings Services lowered Ireland’s sovereign
credit ratings to ‘BBB+/A-2′ last week. At the same time it removed the
ratings from CreditWatch, where they were placed with negative
implications on Nov. 23, 2010. The outlook is stable, S&P said.
The ECB Governing Council member did not touch on monetary policy.
-London newsroom: 4420 7862 7492; email: wwilkes@marketnews.com
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