02 MAR 2011
By Ainsley Thomson and Eamon Quinn
DUBLIN -(Dow Jones)- The next Irish government's hopes of making senior bondholders share the burden of restructuring the country's stricken banks received a setback Tuesday when European Union Commissioner Olli Rehn said the matter wasn't up for negotiation.
Speaking in Brussels, Rehn said making holders of senior Irish bank bonds take a haircut--or reduction in value--was "not on the agenda."
Rehn's comments come as Fine Gael and Labour--the two largest parties following the Irish election--Tuesday resumed their negotiations to form a coalition government.
The treatment of senior bondholders is one of the most contentious issues being discussed in the negotiations.
While both parties say they will seek to negotiate with EU and euro-zone leaders for bank bond holders to share an unspecified burden in the recapitalization of the Irish banks, Labour has taken a harder line, analysts say.
Alan McQuaid, chief economist at Bloxham Stockbrokers, said Rehn's comments were a "speed bump" in the negotiations.
"It is a reality check," he said. "They [the EU] are concerned that if there was burning of bondholders it would have a large impact on Spain, Portugal and the rest of the European Union."
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