MINISTER FOR Finance Michael Noonan welcomed moves to overhaul Europe's bailout fund, saying the plan would cut the interest rate on Ireland's rescue loans without the need for a quid pro quo from Dublin.
Although Mr Noonan has heard nothing from France to suggest the issue of corporate tax was off the table from Paris's perspective, he said the interest rate was now being addressed in "a different context" because the rate for all recipients was to be reduced.
The Minister said measures to extend the maturity on loans issued by the European Financial Stability Facility (EFSF) will also be to Ireland's benefit if formalised by euro zone ministers.
He also believes the Government will be able to retire some of its sovereign debt by using EFSF loans to fund the bond buyback on the secondary market. He further said the prospect of an EFSF guarantee on new bond issues would help ease the State's return to private debt markets.
While such measures would be "of significant benefit to Ireland over the lifetime" of the bailout, he would not say whether they would reduce the consolidation measures required in the budget for 2012.
"It would be tempting to make that claim but it's too soon for me to make that claim," he said. "The benefit will be over the period of the programme. It's more likely to be medium to long term rather than short term. You could safely quote me as saying that the cost of the programme to Ireland over the period of the programme will be less as a result of this, and this will be reflected in the budgetary arithmetic in the medium to long term."
In spite of his positive tone, Mr Noonan said meetings in Brussels of euro zone and EU finance ministers took place "in difficult times".
He was concerned about the failure to agree a second bailout deal for Greece, a spike in Italian and Spanish borrowing costs, and the publication this Friday of stress test results on thousands of European banks.
Asked whether the decision to cut the interest rate on EFSF loans by an as yet unspecified amount served to negate the dispute with France over corporate tax, Mr Noonan said "we'll have to wait and see" how the matter played out.
"I'm saying that there is a policy decision to re-price the EFSF fund and that's not what was decided in March," he said in reference to a decision in principle by EU leaders to allow a rate cut for Ireland.
The cut has not taken effect in light of the disagreement with France, a dispute that started when German chancellor Angela Merkel aligned herself with French president Nicolas Sarkozy in a joint demand for an Irish concession on tax.
Mr Noonan said the situation had now changed, as no new conditions would be sought in return for a lower interest rate. "What's being positioned now is that Ireland has a memorandum of understanding. If you take Ireland and Portugal drawing money from the fund, there will be a new pricing arrangement for the same memorandum of understanding.
"So it seems to me that there's a different position opening up now, but we have to see how it develops. I don't in any way want to raise the bar, raise expectations or say that all our problems are solved."
In March, Ireland was offered a one percentage point cut in the three percentage margin which is added to the borrowing costs of the bailout fund.
Asked if a bigger cut was likely in the looming overhaul of the fund, Mr Noonan said: "It holds out the prospect of a greater reduction but I know already that there are individual countries which are trying to peg the reduction to 1 per cent."
He said the overhaul of the EFSF would deliver policy objectives the Government had been seeking for some time, but a number of concerns remained in the wider euro zone.
"There's concern about Greece and the fact that the programme hasn't been worked out yet and I'd be concerned about that, but I'd be hopeful that a programme that addressed the Greek needs can be worked out over the coming weeks," he said.
"The second issue then is the fact that . . . the spreads widened in both Italy and Spain. I'm sure, very strong economies that they are, that can be reversed but it's a matter of concern.
"Then the third area which the markets are watching is the fact that the stress tests on more than 8,000 banks across Europe are being published I think on Friday.
"So we're going to have a situation where the markets aren't going to calm down in advance of the publication of the stress tests in my view."
