Rehn supports rate reduction

 

EU economics commissioner Olli Rehn has told Irish MEPs the European Commission supports a reduction of the interest rates Ireland is paying on the European portion of the bailout.

However, Mr Rehn stressed that the decision ultimately rests with European finance ministers.

In written responses to questions from Fine Gael's Gay Mitchell and Jim Higgins and Fianna Fáil's Pat 'the Cope' Gallagher, Mr Rehn also defended Europe's role in the overheating of the Irish property market and said the commission had repeatedly issued warnings about the situation from as early as 2000.

He said an interest rate reduction would have to come as part of "a comprehensive package" including progress on economic governance in the euro area and the new European stabilisation mechanisms.

His remarks, days ahead of a crucial European summit, are a fresh indication that the debate over an easing of Ireland’s rescue plan is well underway.

Mr Rehn insisted that the main elements of the EU-IMF financial assistance programmes "should not be renegotiated". He said it was the view of the commission, the IMF and the European Central Bank that "the policy path set out in the programme is the right one to ensure its success".

He said its quarterly reviews offered "an opportunity to evaluate whether changed circumstances warrant changes in specific elements of the programme".

Mr Rehn said the commission supported a reduction of the interest rate margin on the European portion of the borrowing but said any changes "would have to include progress on economic governance in the euro area, the new European stabilisation mechanisms and the adjustment measures".

He also insisted that Ireland's public debt was sustainable. "Based on realistic macroeconomic and growth projections for the EEU and IMF, the Irish public debt is forecast to set on a declining path starting in 2013/14," he said. He claimed such "a turnaround would facilitate a reduction in Ireland's risk premium and the overall cost of financing its debt".

Mr Gallagher welcomed the commissioner's "firm commitment" to support a reduction of the interest rate margin on the EU portion of the loan package. "However, the incoming government must tread carefully as elements within the council and commission may seek an increase in our corporation tax rate as part of new measures on economic convergence in the euro area," he said.

German chancellor Angela Merkel has proposed a competitiveness pact as part of a crucial strand of a wider debate on reforms to the euro zone bailout fund.

EU diplomats are said to be moving towards agreement on the text of a new pact ahead Friday's summit, but remain divided over tax co-ordination plans.

Earlier this week, former taoiseach John Bruton said EU member states and the ECB had had a role to play in the Irish financial crisis with many banks from other countries lending "irresponsibly to the Irish banks in the hope that they too could profit from the then obtaining Irish construction bubble".

Mr Bruton pointed out that those banks were supervised by their home central banks, and by the ECB who “seemingly raised no objection to this lending”.