Noonan says 'excessive' profits on Irish bailout could be as high as €9bn

Wed, Jul 6, 2011, 01:00

PROFITS on the bailout loans to Ireland could be worth up to €9 billion over their lifetime, Minister for Finance Michael Noonan has told the Dáil, describing them as “excessive”.

Mr Noonan also confirmed that “next year is going to be difficult”.

“There’s going to be a hard budget, and whether its €3.6 billion or €4 billion, it’s still going to be a very difficult budget.”

There was also a question whether €3.6 billion in cuts was enough to bring the deficit down to the required 8.6 per cent.

He was answering finance questions in advance of the arrival today of EU-IMF officials for the latest quarterly review to ensure Ireland’s bailout targets are being met.

Mr Noonan said of the funding to Ireland that “we are not in receipt of charity or of grant-in-aid”.

“It is simply a loan facility to keep us going when we could not raise money on the markets and the interest rate is very high.”

Sinn Féin finance spokesman Pearse Doherty pointed to exchequer figures which he said showed that “just over 20 per cent of all taxes collected in the State are now needed to pay off the interest on our national debt”.

He said the figure would increase because servicing the national debt would cost €5.2 billion this year and increase to €9.2 billion by 2015.

Mr Noonan said he had consistently made the point that the cost of the bailout programme was excessive. This made it very difficult for countries to move out of the bailout programme because “the margin is too big”, and he made that point at every opportunity.

Those who designed the programme considered “moral hazard” as well as a “strong interest rate” to discourage people from going into bailout programmes and to ensure they came out of such deals as quickly as possible. But “it is a flawed analysis”.

Mr Noonan said Fianna Fáil had gone from 42 per cent to 15 per cent in the general election and that was “moral hazard enough to be going on with” in government.

“You don’t need a penal interest rate of top of that to make a government behave.”

The EU funding Ireland receives comes from the European Financial Stabilisation Mechanism (EFSM), from the European Financial Stability Facility (EFSF) and in bilateral loans from Britain, Sweden and Denmark.

The gross profit margin for the EFSM on maturity after 7.5 years on the €22.5 billion loan would be €4.9 billion. Such interest goes into the EU’s budget from which all member states, including Ireland, benefit.

The EFSF profits, however, go to guarantors and the gross profit on the €17.7 billion loan over 7.5 years would be about €3.3 billion.

Funding from the UK will cost €650 million. Agreements and margins for Denmark and Sweden are not yet finalised.

On the review by the EU and IMF, the Minister told Michael McGrath (FF, Cork South Central) that in the three months up to the December budget there would be items for renegotiation because the way they “make the correction” in the budget might not accord with what is in the agreement.

Questioned about whether he had asked the banks not to pass on to mortgage holders the expected European Central Bank interest rate rise, Mr Noonan said that when the restructuring of banks was completed “they will be in a position to offer a more cost-effective service” to mortgage holders.