Ireland to be crippled by €10bn a year interest

By Conor Ryan, Paul O’Brien, Ann Cahill and Brian O’Mahony
Monday, November 29, 2010
THE country is facing crippling interest payments of €10 billion a year after the European Union and IMF agreed to an €85bn rescue package to fund the economy for the next three years.

He said the interest rate was cheaper than Ireland could have got on its own and the deal was “necessary to allow us to fund our budgets over the coming years”.

Fine Gael finance spokesman Michael Noonan said the interest rates meant the country was “sold out” in the negotiations.

Labour leader Eamon Gilmore said the IMF and EU walked over a Government without backbone or authority.

The details first emerged in Brussels at 6.15pm yesterday when Luxembourg’s Prime Minister Jean Claude Juncker announced the deal between Europe’s finance ministers had been struck.

Twenty minutes later Mr Cowen addressed a press conference at Government Buildings and spelled out how Ireland would be funded up to 2013.

The agreement demands that Ireland broadly sticks to the terms of the four-year plan announced last week, introduces a property tax and raises the pension age.

A fiscal responsibility law will have to be imposed on Government and an advisory council on budgetary affairs established.

The minimum wage will have to fall by €1 an hour and employers will be given greater scope to plead an inability to pay.

Future governments will also be restricted during the lifetime of the deal. If they raise any revenue not budgeted for, it will have to go towards paying debt rather than additional services.

In terms of the banks, €10bn will be made available straight away. Of this €8bn will be channelled into the institutions directly and €2bn as a short- term contingency fund.

From the immediate €8bn pot the Central Bank said Allied Irish Bank will get €5.2bn, Bank of Ireland €2.2bn, EBS €438m and Irish Life and Permanent €98m.

A further €25bn will be available for the banks to be drawn down when they require and after the Central Bank enforces new capital requirements.

The amount of money the banks take from the remainder of the fund will be added to the national debt and this will increase interest costs.

The breakdown of the rescue package means that €12.5bn will be taken from the National Pensions Reserve Fund and €5bn from our own cash reserves. The European Commission’s stabilisation fund will supply €22.5bn.

The Euro area’s emergency stabilisation fund will also lend us €17.7bn; Britain will offer €3.8bn; €390m will be given by Denmark and Sweden will lend us €598m.

The IMF will provide €22.5bn in a term of up to 10 years, with a minimum interest rate of 3.1% based on the current market. Head of the IMF team in Ireland Ajai Chopra said he was confident the Government will pass the budget on December 7.

He also said the open and flexible nature of our economy meant it was in a “much better situation than many others to rebound quickly”.

This story appeared in the printed version of the Irish Examiner Monday, November 29, 2010