Mr Noonan goes to Washington but it's all cold in Frankfurt
SHOWDOWN: Noonan's bid to hit Anglo speculators stuns markets
FINANCE Minister got a good reception in Washington but it's still very cool towards the Irish at the European Central Bank in Frankfurt.
The IMF threw its full support behind Finance Minister Michael Noonan's plan to burn senior bondholders at our two main failed banks.
Stunned investors were this morning reacting to the new proposal outlined by Minister Noonan to go after senior bondholders at Anglo Irish Bank and Irish Nationwide.
He said that the Government has the support to impose "substantial" losses on senior bondholders in the basketcase banks -- a marked departure from earlier statements.
The International Monetary Fund (IMF) has already backed the proposal.
Mr Noonan now faces an uphill battle with the European Central Bank (ECB) in Frankfurt to agree to the plan not to repay more than €3.5bn worth of loans owed to investors by the failed banks.
The head of Bank Credit Research in London, Hank Calenti, said that investors were not expecting such an about turn by the Finance Minister.
Mr Calenti said that it was not the size of the amount but the fact that it could set precedent that that it could happen elsewhere that stunned the market.
However, he said that even with a change at the top of the ECB -- with Mario Draghi tipped to take over -- he could not see the proposal being backed.
"If the ECB does not want this to go forward then they could make it very difficult to go forward," he said.
Mr Noonan, who was in Washington for talks with the IMF and US treasury secretary Timothy Geithner, said that the IMF "understood our position fully".
"I put my cards face up on the table, saying: 'Look, it's no longer a bank. Anglo is now merged with Irish Nationwide. It's a warehouse for impaired assets. Its deposit base has been moved out into the pillar banks," he added.
"We don't think the Irish taxpayer should redeem what has become speculative investment. We don't believe it should be redeemed at par."
He also asked Mr Geithner to use his influence with France and Germany to obtain lower interest rates on bailout deals for Ireland, Portugal and Greece.
Tanaiste Eamon Gilmore said this morning that the announcement would not be a shock to the ECB.
"The ECB has been aware that it has been the government's policy from the very beginning to minimise the impact on the Irish taxpayer," he said. "The Irish government's position from the very beginning has been for burden sharing."
Minister Noonan said that the country has now regained the respect of the international markets and is in a better bargaining position.
"I think were in an entirely different situation than where we were in November," he said. "The then Irish government was going cap-in-hand and the country was seriously isolated."
"What the ECB and the European Commission has to do is look at where are the best prospects of a country recovering and coming out of its difficulties. The best case of a country getting out of its problems is Ireland."