Bailout details are open to change, says Lenihan

MINISTER FOR Finance Brian Lenihan said last night measures agreed in the EU-IMF bailout package were open to change.

However, he said changes to the interest rates on loans drawn down were a different matter. “The interest rate for funding from the IMF and the various EU funding lines were determined by a common approach for any borrower,” he said. “Accordingly, any changes to these rates cannot be negotiated for Ireland in isolation and must be seen in the wider context . . .”

His comments came in response to statements earlier by Central Bank governor Patrick Honohan, who suggested the terms of the €85 billion bailout could be renegotiated.

Mr Lenihan said it was always the case the present administration or any new government could bring in changes where savings were made as long as they had the same impact.

“What is clear, however, is that the size and speed of the budgetary adjustment is not open for discussion,” he said. “Support under the programme is conditional on this level of adjustment being achieved.”

Addressing the Institute of International and European Affairs, Prof Honohan said a new government would be able to move away from measures agreed with the EU and IMF as long as the new policies had the same impact on State finances.

“There is quite a lot of flexibility there,” he said.

The governor said the measures agreed under the bailout mechanism for coming years were “much less specific” than those in place for 2011.

He said the budgetary aspects of the bailout had all been drawn from the Government’s four-year National Recovery Plan: “That’s . . . why we can be confident that, if a new government were to want to substitute alternative measures which were both economically efficient and of equal fiscal effect, it would receive a sympathetic hearing from the funders.”

Fine Gael finance spokesman Michael Noonan said he had been assured separately by EU commissioner Olli Rehn and the IMF’s Ajai Chopra that renegotiation was possible, provided the effect on the deficit was the same. “There is quite a lot of scope. There is a set of conditions and all the conditions are negotiable. Trying to negotiate a lower interest rate, or discounts on senior bank debt, would be at prime minister level and you would have to have full agreement at the European Council. It is in a different category, but it is possible,” Mr Noonan said.

Labour finance spokeswoman Joan Burton welcomed Prof Honohan’s remarks: “The first and most important job of a new government will be to produce a better arrangement with the IMF, with a view to getting the country out of the clutches of the deal. The critical issue will be to restore the country’s economic capacity, with a view to getting people back to work, getting business going again and . . . credit flowing.”

Prof Honohan’s address focused on how uncertainty about Irish prospects could be reduced, thus helping the Republic’s chances of recovering and funding itself by selling bonds again. He said Ireland was facing two financial problems: debt levels and how investors feel about the prospects for those debt levels.

The bailout does not cut the size of these difficulties in itself, but it does buy time in which they can be addressed by the State, he said. This will let the bond market be “left for a while to digest its previous meals”. Prof Honohan noted the IMF and the EU view Ireland’s debt position as “manageable”.

Meanwhile, the Government has published its schedule for the Finance Bill which implements the Budget. The legislation is due to clear both Houses of the Oireachtas by February 25th, which indicates a general election would be likely to take place on March 24th or 25th.