Rate cut could be 'worth €1bn'
The bailout deal for Ireland could be worth €1 billion a year and not the €600-€800 million that was first forecast, the Minister for Finance Michael Noonan has said.
The new deal agreed with euro zone leaders yesterday means a second bailout for Ireland is "off the table" the Minister for Finance Michael Noonan said today.
"I have enough evidence to suggest that by next year the annual saving could be over a billion," he said.
There was further good news for the Government with the announcement by the British chancellor of the exchequer George Osborne that the interest rate on its £7 billion (€8 billion) bilateral loan to Ireland will be reduced to a rate similar to that agreed at the European Union summit.
Mr Noonan said the additional savings will be generated by a decrease in the cost of bilateral loans from the UK, Denmark and Sweden, which together amount to €4.8 billion and technical changes to the rate on its IMF loans, which total €22.5 billion.
Yesterday's summit deal will see a reduction in the interest rate on bailout loans to Greece, Ireland and Portugal and follows a 10-hour emergency summit at which euro zone leaders agreed to provide a second international bailout worth €109 billion to Greece.
The plan will be funded by euro zone countries, the proceeds of privatisations and the anticipated €12.6 billion benefit of a debt buyback programme.
Mr Noonan said the reduction in the interest rate was "very good news" and "very significant steps" had occurred from Ireland's point of view.
Speaking on RTÉ's News at One, Mr Noonan said a provision in the agreement meant Ireland would not have to go back to markets when the programme ended if the country had not reached its deficit target.
"There's a commitment that if countries continue to fulfil the conditions of their programme, the European authorities will continue to supply them with money even when the programme concludes," he said.
"That takes the whole issue of a second bailout for Ireland off the table.
"If we're not back in the markets, the European authorities will give us money until we're back in the markets."
However, he said there would be "little or no easing" of budgetary conditions for this year, but there could be more positive implications in later years.
"I'm afraid we still have to face the music in December," Mr Noonan said.
EU Economic and Monetary Affairs Commissioner Olli Rehn said the deal agreed last night provides Greece with the necessary financing to support the repairing of its public finances and competitiveness.
"The choices made will bring important benefits for European citizens, for the stability of the euro-area and for the global economy," he said.
Mr Rehn said Greece will get the necessary financing to support its adjustment towards stronger public finances and competitiveness.
"The lowering of the interest rates and the extension of the maturities of the EU loans for Greece will substantially improve the country’s debt sustainability and refinancing profile.
"The offer from the private sector, as presented by the Institute of International Finance, for a voluntary private sector involvement to improve Greece’s debt profile, is an important contribution in this respect."
Greece said a second bailout had bought it breathing space and pledged no let-up in its drive to cut a still-mountainous debt which economists expect to force a deeper restructuring in the future.
The deal embraces the possibility of a “selective default” being declared on Greek debt, something the European Central Bank resisted for months.
“We are engaged in a voluntary, not compulsory engagement of the private sector, as in line with our original message,” ECB chief Jean-Claude Trichet said.
However, credit rating agency Fitch announced it would consider Greece in "restricted default".
Greece's finance minister Evangelos Venizelos said the deal would provide "great relief for the Greek economy".
The markets reacted positively to the implications for Ireland, with yields on Ireland's two-year bonds falling by 4.4 per cent to 14.706 per cent and the 10-year bond yield declining by half a per cent to 11.848 per cent.
Under the deal the annual cost of Ireland’s international bailout will drop by up to €800 million.
Minister of State for European Affairs Lucinda Creighton today said Ireland wants to repay its loans rather than default.
"The private sector involvement for Greece is something that a number of member states were insistent on. It'll happen in a very isolated way," she told RTÉ radio.
''Very clearly, Ireland and Portugal are considered to be entirely distinctive to Greece.''
The reforms will see the annual interest rate on Ireland’s bailout cut by some 2 percentage points to about 3.5 per cent which led Taoiseach Enda Kenny to predict the annual benefit to Ireland will be between €600 million and €800 million.
Mr Kenny also declared the conflict with France over corporate tax to be at an end, he said a reduction in the interest rate came without strings attached.
“It’s over, c’est fini,” Mr Kenny said in reference to the dispute with French president Nicolas Sarkozy over corporate tax. “I had a very cordial conversation with the French president,” he told reporters.
“There is absolutely no change in our position in this regard and the matters that you mention were never even raised at the meeting in any shape or form.”
For months, the debate on Ireland’s rate centred on a 1 percentage point reduction.
Euro zone leaders have also agreed to expand the powers of the European Financial Stability Facility, giving it scope to extend the maturity of its loan programme and intervene in secondary bond markets to facilitate bond buyback programmes.
Mr Kenny said it was now open to the Government to consider using the fund for those purposes.
The Government will press in separate talks with all 27 member states to cut the interest rate on loans issued by European Financial Stability Mechanism, a fund operated by the EU Commission, by a similar amount. Diplomats also said the Government will seek a cut in the cost of Ireland’s bilateral loans from Britain, Denmark and Sweden.
Mr Kenny said the rate cut will underpin Ireland’s debt sustainability, investor confidence and the recovery of the economy.