State to pay €6bn interest on bailout by 2014

 

THE OVERALL cost to the taxpayer of the bank bailout in interest payments alone will amount to €1.5 billion next year and some €6 billion between now and 2014, according to information supplied by the Department of Finance.

The Government has issued over €20 billion in promissory notes to date to Anglo Irish Bank and Irish Nationwide, with another €10 billion likely to be transferred. Opposition parties pointed out yesterday that the principal – which may total €31 billion by the end of 2010 – will leave the State facing substantial interest payments for over a decade.

Traditionally, the principal is not paid back by governments but increases the percentage of debt to overall income or GDP. That percentage is reduced when the economy experiences growth.

However, servicing the debt, or paying interest on it, will rise to over €1 billion per annum next year, sources in the Department of Finance confirmed yesterday.

Interest on the promissory notes to the banks will amount to €700 million in 2010; €1.5 billion in 2011; €1.4 billion in 2012; €1.3 billion in 2013 and €1.2 billion in 2014. With other promissory note obligations falling due, the interest costs by 2020 are estimated to be in the region of €1.7 billion.

Labour Party finance spokeswoman Joan Burton said yesterday that the bank “IOUs” would generate enormous interest payments in the budget every year.

“This just makes it more challenging to meet the 3 per cent deficit target by 2014 and will result in more tax hikes and spending cuts in the government’s four year plan.”

She said interest charges could add over €10 billion to the final bill for bailing out the banks at the end of the process. Fine Gael finance spokesman Michael Noonan said that Minister for Finance Brian Lenihan’s presentation of its solution to the banking crisis as a “quick fix” now seemed a hollow boast.