EU cannot commit to lower bailout rates - Merkel

GERMAN CHANCELLOR Angela Merkel said last night that the European Union cannot commit to lower interest rates on bailout loans for victims of the debt crisis, in a rebuff to Ireland and Greece.

Ms Merkel said that Ireland and Greece signed up to conditions when accessing aid. She was speaking at a joint press briefing in Berlin with Portuguese prime minister Jose Socrates.,

In Irelands case, that was only about three months ago, she said. “Interest rates are ultimately an expression of confidence in a country,” Ms Merkel said, adding that “we can’t artificially lower them. One benchmark is that interest rates have to reflect refinancing costs. We cant get to a point where Ireland pays lower interest rates than Portugal”.

Incoming taoiseach-elect Enda Kenny made renegotiating the terms of Irelands €85 billion November rescue a key plank of his government. He has said he will raise the matter at a meeting with Ms Merkel and other European People’s Party leaders in Helsinki tomorrow.

Mr Kenny wants lower interest fees on rescue loans, which average 5.8 per cent and says senior bank bondholders should bear losses on debt issued before the State guarantee of September 2008.

Ms Merkel yesterday praised Portugals efforts to cut debt. Ireland and Greece, meanwhile, “tapped an aid program and agreed to conditions on what tasks they must fulfill,” she said. “If the Irish government now has a problem with interest rates, our job is to figure out what we can do –or whether we can do anything,” Ms Merkel said.

With the European Union nearing its end-of-the-month deadline for a reinforced plan to aid debt-strapped countries, Ms Merkel yesterday dismissed talk of a reduction in bailout loan rates, a sign German officials are stepping back from a willingness to agree an overall common position to protect the euro.

Ms Merkel meets European allies in Helsinki tomorrow amid mounting speculation that Portugal will be the third country to seek a lifeline.

Risk premiums for Spain, Portugal and Italy have increased since a EU summit last month that failed to endorse an economic competitiveness plan proposed by Ms Merkel and French president Nicolas Sarkozy as a condition for aid.

The euro, meantime, has climbed as euro-area inflation accelerated. Underscoring the discord over the debt-fighting formula, officials at the meeting of European Conservative party leaders called by Finland include Mr Kenny and Finnish finance minister Jyrki Katainen, who has signalled opposition to easing Irelands loan rate.

As investors speculate that Portugal is moving toward an aid request, Merkel is sticking to her crisis solution: all euro countries should strive to be as competitive as Germany and join it in setting constitutional debt limits. – (Bloomberg, Reuters)