Irish politicians threading the line between sophistry and mandacity on interest rates on debt.

FG plan to secure cut in interest rate is nonsense — EU minister

By Fionnan Sheahan and Sarah Collins in Brussels

Friday December 17 2010

THE prospect of a new Fine Gael and Labour Party government negotiating a lower interest rate on the country’s €85bn bailout was knocked back last night.

A German government minister described opposition claims they could cut a better deal on the interest rate on the EUIMF package as “complete nonsense”.

And the second-in-command of the IMF in Europe said a better rate would be available when Ireland was able to go back to borrow on the international markets.

Fine Gael and Labour claim the Government negotiated a bad deal with a 5.7pc average interest rate and a new coalition could reduce this figure.

Enda Kenny‘s party said this week a reduction in the interest rate would be top of the Fine Gael agenda in any renegotiation. Eamon Gilmore said EU countries were charging a margin on the loans to Ireland which would cost the taxpayer €5bn over the lifetime of the repayments.

But Germany’s European Affairs Minister Werner Hoyer rejected the idea that a new government would be able to negotiate a lower rate of interest with the EU.

“I think this is complete nonsense and should not be used for domestic political gains. The Irish Government has negotiated a very difficult deal and it has done so very successfully.

“And, of course, it would question not only the seriousness of the Irish Government but that of the (European) Commission and the partner countries if one made such a political link. That doesn’t fit,” he said.

IMF European Department deputy director Ajai Chopra said there was “always room for discussion” with a new government on the detail of the deal — provided it achieved the same long-term objective of fiscal and financial stability.

But Mr Chopra gave no indication the interest rate being charged by the IMF would be reduced or even included in such discussions.

He pointed out the money being loaned to Ireland by the IMF was at a lower interest rate than what the country could borrow on the international markets.

“As soon as there is an advantage from borrowing from the market, Ireland will do this,” he added.

Fine Gael leader Enda Kenny said he would seek a mandate when in government to renege on up to €25bn worth of unguaranteed bank debt.

Mr Kenny contends the State could save between €12bn and €17bn as a result of debt restructuring.


He said he would be putting the suggestion to German Chancellor Angela Merkel, whose Christian Democratic Union is a fellow member of the European People’s Party, Fine Gael’s umbrella grouping in Europe.

But Ms Merkel has insisted that bondholders take a haircut as a condition of future bailouts — after June 2013 — on a case-by-case basis.

Taoiseach Brian Cowen lashed out at Mr Kenny’s remarks, saying he wasn’t making “a lot of sense”.

He also warned the Fine Gael leader not to spook markets and cause a “flight of capital” from Irish banks.

“We are putting in place and have already been doing discounts on subordinated debt,” he added.

Mr Cowen said under Irish law senior bondholders were in the same position as depositors. “We really need to get real about how we proceed here and put forward responsible policies, doable policies that are in touch with the reality of the situation we’re in,” he added.

– Fionnan Sheahan and Sarah Collins in Brussels

Bill’s Comment.

The comments of both Werner Hoyer and Enda Kenny could be construed as choreography or as Mandy Rice-Davies said of Stephen Ward “He would say that wouldn’t he?”. Clearly, it is in the interest of the ECB that Ireland does not default but in order to achieve that outcome, a piece of financial sophistry may have to be indulged in. When Ireland has closed the fiscal gap between taxes and spending to a great extent, we must seek to refinance our borrowings at a lower interest rate. This may be made more difficult by the ECB raising interest rates in late 2011.

Mr Cowen accuses his opposite number Mr Kenny of not making a lot of sense. Irish law may be changed in exceptional circumstances. With regard to bonds and depositors, such changes are not sensibly signalled in advance. Kenny attempting to lower the debt burden on his country in this manner is not going to cause a flight of capital from the nearly nationalised banks. The capital has flown already under the trembling hands of messrs Cowen and Lenihan. I have little doubt that Team Fine Gael will not fail the country and will re-establish our economic sovereignty. I would hate to be proven wrong. Mr Gilmore’s comments are vague. I will leave it at that. Gilmore is labour’s WEAKEST LINK on the national economic sovereignty question. Why cannot he get off the pitch and bring on his A Team – Ruairi Quinn and Pat Rabbitte?