Regling warns of 'drastic conditions'

WHAT HAPPENS NEXT:THE CHIEF of Europe's €440 billion rescue fund Klaus Regling signalled this weekend that "drastic conditions" and "dissuasive costs" will be attached to Ireland's bailout plan.

Mr Regling, a German who leads the Luxembourg-based European Financial Stability Facility (EFSF), said the annual interest rate on any loans would be close to the 5 per cent that Greece is paying for its rescue aid.

Such a rate would be more than 2 percentage points greater than the comparable interest on German 10-year bonds but more than 3 percentage points below the current rate on Irish bonds.

“Drastic conditions” and “dissuasive costs” would not be imposed to penalise the Government, he said.

These were necessary, however, because states shut out from markets typically needed to adjust their economies as their exclusion flowed from a serious lack of competitiveness.

Mr Regling first came to prominence in Ireland last summer when his report for the Government on the financial crisis drew a causal link between the Taoiseach’s policies when he was minister for finance and the implosion of the banking system.

He has been closely involved in intensive European scrutiny of Ireland’s affairs since his appointment last summer and attends all meetings of the euro zone finance ministers.

Interviewed in the Saturday edition of the French daily Le Monde, Mr Regling said the rescue will be funded with the backing of euro zone guarantees by institutional investors as well as central banks and sovereign funds, in Asia particularly.

“In general the Asians have been very positive,” he said.

Asked if delays on the Irish side were hampering preparations, Mr Regling said it would be easier to tell potential lenders he would have a requirement for billions of euro within months.