European Commission raises €3bn for Ireland at higher rate
THE EUROPEAN Commission raised a further €3 billion for Ireland’s EU-IMF bailout yesterday but at a higher interest rate than in its two previous sales for the rescue.
The money was raised in a joint transaction in which the commission’s bailout fund, the European Financial Stability Mechanism (EFSM), also tapped markets for the first €1.75 billion for Portugal’s bailout.
This sale brings the total raised for Ireland by the European bodies so far this year to some €16.4 billion.
Although the EFSM raised money for Ireland at 2.59 per cent in January and 3.257 per cent in March, the interest rate it paid to raise yesterday was 3.53 per cent.
This was the first time, however, that it approached the 10-year money market for Ireland. This market is comparatively smaller and typically more expensive than the market for shorter-dated debt.
The commission said the sale was priced at mid-swaps plus 14 basis points “at the tight end” of initial price soundings. “Books were closed within one and a half hours, being oversubscribed three times.”
About 22 per cent of the issue was taken up in France, with 15 per cent taken up in both Germany and Britain. Asian investors took up 25 per cent.
Ireland will pay 6.455 per cent to borrow this money from the EFSM. The interest rate Dublin pays is determined by the addition of a 2.925 percentage point “surcharge” over the fund’s own borrowing costs.
The Government’s pursuit of a reduction in this surcharge has dominated its dealings in Europe since it took office.
EU leaders agreed in principle to cut the surcharge by one percentage point but France and Germany want Dublin to dilute its corporate tax regime in return. The Government refuses to concede, and it recently called for an even greater rate cut.
Given Dublin’s strong cash balances and Lisbon’s pressing need for funds to meet a big bond redemption next month, it had been expected before yesterday’s deal that the bulk of the proceeds would go to Portugal.
The European Financial Stability Facility (EFSF), a separate fund run by the 17 euro zone countries, is expected to postpone an auction it planned to make for Ireland next month in view of the standoff over the Irish interest rate.
Dublin has signalled to its sponsors that it would prefer to run down its cash before receiving new loans.