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Irish PM: Thanks Europe, Warns Bond Holders

Ireland’s new prime minister Enda Kenny has thanked both German Chancellor Angela Merkel and European Central Bank President Jean-Claude Trichet for their backing of the Irish people through the recent financial crisis.

Ireland and European Union
Phillipe Sion | The Image Bank | Getty Images
Ireland and European Union

In an exclusive interview with CNBC on Wednesday Kenny made it clear the support of Ireland’s euro zone partners has saved the Irish economy from an even worse fate.

“Remember this – the ECB has been very good to Ireland. And they’ve injected very substantial, extensive, capital and liquidity into our banks. Monsieur Trichet himself has been a very good friend of Ireland,” Kenny said.

“The German Chancellor, the German Minister of Finance and others have been very favorably disposed to the decisions that Ireland have made already.

And that the new government have made – in tackling head-on the extent of the challenge that the country faces,” he said.

Kenny, who was speaking to CNBC before heading to the US for meetings with investors in New York, said he wants Ireland to pay its own way and refused to be bullied on Ireland’s low corporate tax rates.

“We want to pay our way, we want to play our part, we want less money from Europe, but more flexibility,” he said.

“My message to Wall Street is that there is now a new government in place, a new sense of priorities, and a new sense of direction. Ireland is open for business. We will not be changing our corporate tax rate. We want to build on the traditional links of investments from the United States in Ireland,” Kenny added.

“It is a matter of national competence in respect of each government. And that’s been assured in the declaration to the Lisbon Treaty. So from that perspective, any change in the corporate tax rate from the Ireland’s point of view would be representative of a major breach of trust and we have no intention of doing that,” he explained.

Growth and Haircuts

Following the austerity measures forced on Ireland by its fiscal problems and the terms of its recent bailout the big question for the economy is how it grows its way out of trouble.

Kenny told CNBC this would be tough but refused to accept medium-term targets could not be reached.

“We want to see a situation where we can get back to being in charge of our own economic destiny as quickly as possible. That is to say goodbye to the IMF and the ECB in terms of the deal. Now the challenge here is quite daunting,” he said.

“And it’s not to be under-estimated. And that’s why the focus of the government has been on jobs, on job creation, on stimulation of our own economy, on continuing to relieve the obstacles that are hindering businesses actually flourishing here,” Kenny added.

For investors in Ireland the major worry is the chance of default on the bonds in its ailing banking industry.

Kenny said while the ECB did not want burden-sharing for senior bond holders in Anglo Irish Bank and Irish National Savings Bank, many lose out.

“Europe has actually kind of said no on many occasions to many things and… the no becomes yes. Like the tradition was that you should not touch subordinate bondholder either, but then that became a reality and they’ve made a substantial contribution,” he said.

“But, clearly, if the government intends to have two major pillar banks in the country, obviously, on the one hand you can’t go setting these up and on the other hand say we’re going to scald bondholders within those banks,” Kenny added.

“That is senior bondholders. But in respect to the other banks that I’ve mentioned, Anglo Irish in particular, bondholders obviously in that bank are in a very different category than in one of the two pillar banks that we’ve mentioned.”

Draghi to Replace Trichet?

Who replaces Jean-Claude Trichet as President of the ECB is very important for Ireland and Kenny is keeping his options open on whether Italy’s Mario Draghi should replace him.

“I think he’s coming with a very strong reputation here. A number of countries are already giving their support to him. He’s a strong contender, but like any horse race for a major event, who knows who else would appear?”

“Mr. Draghi at the moment is a person of exceptional competence. He’s got a great reputation; he’s a front runner at the moment. Let’s wait and see what the full field is, But I certainly wouldn’t underestimate his chances,” Kenny said.