EURO GROUP chief Jean-Claude Juncker indicated late last night that any decision on a reduction of the interest rate on Irish rescue loans would not be made until EU leaders agree on a reform of their bailout scheme.
After euro zone finance ministers resolved to accelerate talks to expand the scale and scope of the European Financial Stability Facility (EFSF), they are now likely to work towards a deal to reform the EFSF and widen its mandate in time for an EU summit near the end of the March.
Minister for Finance Brian Lenihan said as he arrived in Brussels for a meeting of finance ministers that the question of the interest rate would be discussed, but Mr Juncker, who is Luxembourg’s prime minister, was evasive when asked whether it was realistic to expect that the interest rate might be decreased as part of such reforms.
Mr Juncker said he was “not very eager to give a clear-cut response” when asked whether other states were strongly in favour or opposed to the notion that the Irish interest rate might be cut.
“We did not discuss this point in sufficient detail that I could be able to give you the outcome of that debate. This makes part of the ingredients of the components of the comprehensive package we’ll deliver some time from now,” he told reporters.
As a succession of ministers made it clear that an “urgent decision” to reinforce the EFSF was not on the cards at their first meeting of the year, Mr Lenihan told reporters the reforms would require “slow, incremental” work and added that this could be done only by unanimity.
Ireland stands to receive some €17.7 billion under the EU-IMF rescue plan from the EFSF, which is operated by the 17 euro zone countries, and €22.5 billion from a separate EU Commission scheme, which is known as the European Financial Stability Mechanism (EFSM).
“The interest rate set for Ireland under these funds was set some time ago. I’m glad to say we’re beginning a discussion this evening about how those interest rates can be improved, and I’m very anxious to participate in that discussion as you can appreciate,” Mr Lenihan said.
“Clearly in the context of international discussions with our European partners my intention is to ensure that Ireland gets a better deal and this is the only way it can be done.
“It can’t be done by unilateral directions from Dublin. It requires constant unremitting work here in Brussels to do that...I don’t expect those discussions to terminate today.”
However, the Minister said new legislation to give effect to IMF reforms agreed three years ago would have the effect of reducing the rate that Ireland pays for the €22.5 billion it stands to receive from that source.
The Bretten Woods Amendment Bill will marginally increase Ireland’s IMF voting quota, reducing the annual rate of interest on the IMF portion of the bailout loans to 5.55 per cent from some 5.7 per cent. The Minister will bring this Bill to Cabinet today alongside the Finance Bill, which gives effect to the Budget.
Mr Lenihan’s caution on the prospect of a reduction in the EU interest rates – roughly 5.7 per cent – was mirrored by sources briefed on official thinking within many of Europe’s finance ministries.
In a separate development last night, the EFSF said it had appointed Citibank, HSBC and Societe Generale to manage its inaugural bond sale next week under the Irish rescue. The fund expects to raise a five-year bond valued between €3 billion and €5 billion in a sale that will come about three weeks after the first EFSM bond sale.
At issue first in the possible reform of the EFSF is an enlargement of its effective lending capacity to €440 billion from €250 billion. Also in question is the possibility of giving powers to the fund to buy sovereign bonds.
The question of reducing the interest rate on Ireland’s loans reflects concern in some quarters that the assistance is too expensive and could hamper Ireland’s recovery.
Official sources caution, however, that Germany and the Netherlands remain wedded to the notion that any loans should be priced at dissuasive rates to encourage a swift return to private markets. here is concern, said these sources, that any significant reduction in the interest rate would reorient the fund away from providing only “last resort” loans to distressed countries.
