A backstop for Ireland not a 2nd bailout
Ireland’s 3-year bailout runs out by the end of 2013 and attempts are being made to ensure that the sovereign does not suffer from a temporary exit.
Recent comments from Irish FinMin Noonan suggest that once the 2014 budget is published (Oct 15) negotiations will begin on a €10bn backstop for Ireland.
The head of eurozone FinMins Dijsselbloem kicked things off last week by suggesting a willingness to provide Ireland with some form of credit line once its bailout ends.
Irish policymakers would prefer to call it a backstop and not describe it in the same way as Draghi where his use of the words “support program” suggests a 2nd bailout. How the program is phrased is important for Ireland as it looks to convince investors that it can fully access funding markets and not just on a temporary basis.
It is also likely the ECB will reiterate that a credit line for Ireland will meet the conditions for OMT access. However, it is worth keeping in mind recent comments from ECB Coeure that merely meeting the OMT conditions does not guarantee that it will be triggered.
10-year Ireland/Germany spread is once again approaching support just under 2% and a break would see a move back down to 120bp.