Rehn backs Irish bailout rate cut

 

EU economics commissioner Olli Rehn has called for the interest rate on Ireland's bailout package loans to be lowered.

Mr Rehn said the State's rescue loans should be made more flexible to help Ireland recover faster from its crisis and ensure its return to debt markets.

"Ireland provides hard evidence that the EU-IMF conditional financial support approach is working," Mr Rehn said in an article published in the Sunday Business Post newspaper.

"The efforts should be encouraged by lengthening the maturities of the loans and lowering the interest rates," the EU's economic and monetary affairs commissioner said.

Euro zone finance ministers agreed earlier this week to lengthen the maturity of debt and lower the interest rate on loans from the European Financial Stability Facility (EFSF), the euro zone's rescue fund, in an attempt to bring the union's debt crisis under control.

Ireland is borrowing €17.7 billion from the EFSF and €22.5 billion from the European Financial Stabilisation Mechanism (EFSM), the EU's rescue fund, as part of its €85 billion euros bailout from the EU and the IMF.

Ireland is contributing €17.5 billion of its own funds towards the bailout, and by 2013, interest repayments will swallow 20 per cent of tax revenues. The average maturity of the bailout loans is 7.5 years.

The Government has been asking for lower interest rates on its European loans for months but has faced opposition from France, which wants Ireland to raise its 12.5 per cent rate of corporation tax in return.

Meanwhile European Council president Herman Van Rompuy has called an emergency summit of euro zone leaders next Thursday as it seeks to prevent contagion from the wider debt crisis spreading to Italy and Spain.

News of the summit came as five Spanish banks ranked among eight institutions to fail a new stress test on European banks that revealed a total capital shortfall of approximately €2.5 billion. This figure was considerably lower than the estimates of many investors.

Ireland’s three remaining banks – Allied Irish Banks, Bank of Ireland and Irish Life Permanent – each passed the test, but the criteria were less severe than in a separate examination of Irish banks in March. The tests revealed them to have large holdings of Irish Government debt.

Mr Van Rompuy had been trying for days to call a summit in an attempt to bring divided euro zone leaders together over the involvement of private creditors in a second international bailout for Greece.

Confusion over the new rescue package has stoked a fresh wave of turmoil in markets, with Spanish and Italian borrowing costs rising to levels unseen since the euro was introduced in 1999.

While this has led euro zone finance ministers to examine a deeper European response to the debacle, German chancellor Angela Merkel resisted coming to a summit on the basis that the conditions would not be right for such a meeting until a deal is imminent.