THE €85 billion EU-IMF bailout package for Ireland announced last night was roundly condemned by the Opposition parties who are now all likely to vote against the Budget on December 7th.
Fine Gael, Labour and Sinn Féin attacked the intention to use the National Pension Reserve Fund to help provide a further €10 billion in further capital for the banks. In total, the banks could end up getting another €35 billion if their losses are bigger than expected.
The remaining €50 billion is to cover the State’s borrowing needs for the next three years. Opposition parties were highly critical of the 5.8 per cent average interest rate that will be charged by the EU and the International Monetary Fund.
A memorandum of understanding to give legal status to the agreement is near completion and will be published before the budget. It will give quarter-by-quarter targets which will have to be met by the Government in order for funds to be released.
Under the agreement the State will contribute €17.5 billion of the package from the National Pension Reserve Fund and cash held by the National Treasury Management Agency while the total external assistance in the fund will come to €67.5 billion. It is comprised of €45 billion from the EU, bilateral loans from Britain, Sweden and Denmark, and €22.5 billion from the IMF.
Britain will lend nearly €8 billion, including €4 billion in a direct bilateral loan. The British have won a major concession from EU partners, particularly the Germans, by ensuring the UK will not be automatically part of any euro-rescue packages after 2013.
Taoiseach Brian Cowen welcomed the fact that there would be no change to the corporation tax rate of 12.5 per cent which was vital to Ireland’s economic recovery.
Speaking at a press conference he said a large portion of the loans, some €50 billion, would go towards paying for social welfare payments, pensions, health and education “as we manage the transition to a sustainable deficit and debt position”.
He said the programme endorsed the proposed adjustment of €6 billion next year and €15 billion over the next four years, while recognising the timeframe for reducing the deficit to 3 per cent of GDP should be extended to 2015.
Minister for Finance Brian Lenihan said junior bank bondholders would face steep losses but made it clear that senior bondholders would not be hit.
“In the course of these negotiations I did raise the issue of senior debt and the unanimous view of the European Central Bank and the commission was no programme would be possible if it were intended by us to dishonour senior debt because such a dishonouring of senior debt would have huge ripple effects throughout the euro system,” the Minister told reporters.
Mr Lenihan said joint efforts by German chancellor Angela Merkel and French president Nicolas Sarkozy to compel private investors to assume sovereign bailout costs had weakened Ireland’s position.
“Remember, one of the crucial steps if you like in the Irish mounting of the ladder in the secondary markets was the Deauville declaration (last month) and the subsequent discussion about it,” he said.
Fine Gael finance spokesman Michael Noonan said the deal was “a hugely disappointing result for the country” and he said it was hard to imagine how it could have been much worse.
“The Government was cleaned out in the negotiations and has not acted in the best interests of Ireland. At the very least we could have expected a low rate of interest on the loans, EU agreement on a jobs and growth package, and agreement to share the cost of rescuing the banks with the bondholders.
“The Government came away with none of these,” Mr Noonan said.
He accused Fianna Fáil of sacrificing taxpayers’ interests in order to bail out the banks.
“The interest rate of 5.8 per cent is far too high and verges on the unaffordable,” he added.
Labour Party leader Eamon Gilmore described the deal as “a national sell-out” that would leave the country with a crippling level of debt for years to come while the majority of the international bondholders were required to make no contribution at all.
“The Fianna Fáil government has shown no backbone, no negotiating ability and no authority,” Mr Gilmore said.
“ The EU and the IMF have had a walk-over in negotiations with a broken and demoralised government, that is serving out its notice and which has neither the political mandate or the moral authority to conclude such a deal,” he added.
The latest banking bailout – the fourth in two years – will push AIB into almost full State ownership as it has to raise €9.8 billion, including a further €5.3 billion announced last night, to cover spiralling bad loans.
Bank of Ireland is being given another opportunity to avoid Government control by trying to raise another €2.2 billion from private investors before the end of February.
Nama will grow larger, taking a further €16 billion in loans and clearing out all property developer loans from AIB and Bank of Ireland.