Government to prioritise rate cut for EU bailout

 

THE GOVERNMENT sees a reduction in the interest rate for the European element of the bailout package as a key priority over the coming months, according to senior political sources.

The priority, according to Government sources, is to arrive at a situation where Fine Gael and Labour can claim to have successfully renegotiated the terms of the agreement.

Since the prospect of burden-sharing has been rejected by the EU, the new priority is to achieve a reduction in the interest rate.

This will be a key element in Minister for Finance Michael Noonan’s attendance at the informal meeting of EU finance ministers in Budapest on Friday and Saturday this week.

Mr Noonan’s efforts will be taking place in parallel with the diplomatic initiative announced by Minister for Foreign Affairs and Trade Eamon Gilmore at the weekend, which aims to repair the damage to Ireland’s reputation in the EU caused  by the financial crisis.

Mr Noonan will seek to persuade his EU counterparts that the stress test and the restructuring of the banks announced last week have drawn a line under the problems in the banking sector.

“He’ll be telling them that ‘this is the end’ and we won’t be looking for any more funding from Europe,” a source said, speaking on condition of anonymity.

There is a strong belief in Government circles that the interest rate cut could have been obtained at the first European summit which Taoiseach Enda Kenny attended after his election, were it not for the concerns of France and Germany about Ireland’s 12.5 per cent corporation tax rate. “That issue hasn’t gone away,” according to a senior political source.

It is expected in Dublin that the Hungarian presidency of the EU will be well-disposed to Mr Noonan’s efforts and will seek to assist him in securing an interest rate cut, as this would reflect well on its tenure in the presidency.

However, the issue cannot be formally resolved until the next EU summit. The European Commission has already declared its support for the one percentage point cut in interest.

An interest rate cut on that scale would mean an extra €450 million in savings to the exchequer on an annual basis when the European component of Ireland’s loan is drawn down. “It does make a difference,” a senior source said.

However it is considered equally important to show the “home audience” back in Ireland that the EU “understands” this country’s financial predicament and is “prepared to do something about it”.