Sir, – Perhaps I am suffering from an especially prolonged senior moment, but I cannot find any mention in the paper of record of the agreement reached at the EU summit on the European Stability Mechanism (ESM) Treaty. The European Council Conclusions call on member states to “take all steps required to ensure the ratification of the ESM treaty by the end of 2012”.
This might not be so important had Tánaiste Éamon Gilmore not stated in the Dáil on April 13th that Ireland will be required to pay approximately €9.87 billion towards the fund.
From June 2013, a “European Stability Mechanism” (ESM) will provide loans to euro-zone members in difficulties – strictly conditional on the implementation of a range of “adjustment measures.” Described by the German Chancellor, Angela Merkel, as a “solidarity” measure, the ESM will not have retrospective effect, so will not be of any help to this country in its predicament.
Euro-zone member states will only actually disburse €80 billion, in five annual instalments, starting in 2013. A remaining €620 billion of the subscribed capital will be made available by way of “callable capital” and guarantees.
But here is the crux for Ireland: Germany and France, whose sovereign bonds have a triple-A rating, would not need to put up actual money to cover any shortfall of paid-in capital. A guarantee would do. But countries with lower ratings such as Ireland and Greece would have to pay cash. So we will find ourselves in a perverse situation. Countries with easy access to capital can provide cheap guarantees, while the weaker countries will have to put forward cash.
This implies increased borrowing by Ireland and of course increased interest payments such as would easily wipe out the benefit of any decrease in interest payments that might be achieved by the Government and which was the subject of many column inches during the past week. We should hope that we are never asked to stump up real cash by way of callable capital because this will be added directly to our burgeoning debt.
Unfortunately, the Government hasn’t asked us what we think of the ESM and the possibility of up to €10 billion in further debt being piled upon us.
So, before I nod off again, may I use your columns to call for a referendum on the issue, or did I miss something else? – Yours, etc,