€10bn interest-rate cuts on State bailout signed off

Sat, Sep 17, 2011, 01:00

EU FINANCE ministers have signed off on a package of interest rate cuts on Ireland’s bailout which will benefit the State by up to € 10 billion during the course of the rescue.

Minister for Finance Michael Noonan will today raise Anglo Irish Bank when he meets European Central Bank president Jean-Claude Trichet but he has acknowledged there is little prospect of the bank allowing him not to repay some of Anglo’s senior debt.

“You never say never but certainly the European authorities, after the insistence on private involvement in the Greek rescue, were unpleasantly surprised that the effects ran so quickly into Italy and Spain – so I think it’s an open secret that they’re extremely cautious,” Mr Noonan told reporters on the sidelines of a two-day EU meeting.

Asked if he was giving up on the question, Mr Noonan said “we never give up on anything” and then went on to say that he was now pursuing other ways of cutting the cost of propping up Anglo.

Mr Noonan said the senior bond question was no longer his “primary” concern on Anglo.

The Minister is now pursing a deal to secure lower interest and a longer maturity on € 30 billion in “promissory note” loans which were used to recapitalise the bank.

He was speaking at the end of a day during which his counterparts approved technical arrangements to give effect to the decision of euro zone leaders to cut the interest rate on the bailout.

US treasury secretary Timothy Geithner held a private meeting with the ministers and pressed them to step up the battle against the debt crisis.

“Your financial challenges in Europe are eminently in your capacity to manage financially – you just have to choose to do it,” Mr Geithner said.

After the European Commission moved this week to provide its bailout loans at cost price to Ireland and Portugal, ministers backed similar arrangements for the bailout fund run by euro zone countries.

Mr Noonan told reporters the impact of this decision would cut the interest rate premium levied over the borrowing costs of the European Financial Stability Facility by about 2.47 percentage points, greater than the 2 percentage point cut that was approved in principle in July.

“We think that the overall savings to Ireland during the period of the loans will be somewhere around € 9 billion to € 10 billion, which is a sizeable lump of money,” he said.

A spokeswoman for the Minister declined to estimate the total amount of interest that would still fall to be paid as that is determined by market rates at the time the money is raised for the rescue. With a reduction in the effective IMF interest rate to come next year, Mr Noonan said the annual saving at the height of the bailout would come in at about €1.2 billion.

After the approval of new rules for the operation of the euro zone fund, Mr Noonan said the Government would receive a € 600 million rebate in 2016 of a capital buffer the State provided when drawing down a € 4.5 billion loan earlier this year.