'Interest holiday' on bill for bailout to help deficit
THE Government has found a way to improve the country's huge budget deficit in the short term by avoiding interest payments on the costs of bank bailouts for the next two years.
The Department of Finance yesterday revealed it has reached an agreement with the European authorities to take a "interest holiday'' on the money it is pumping into Anglo Irish Bank, Irish Nationwide and EBS, which will improve Ireland's position, at least on paper.
"The effect is to improve the headline deficit," a Department of Finance spokesman said, adding that it does not change the actual borrowing being done for the banks by the National Treasury Management Agency.
The European agency in charge of government accounts, Eurostat, allows countries not to record interest payments on bank injections during what it calls an "interest holiday'', which in this case will take place in 2011 and 2012.
The Government is putting money into Anglo, EBS and Irish Nationwide via what it calls "promissory notes'', which carry an interest rate. These are effectively IOUs which means the Government doesn't have to put all the money into the banks in one year.
Investors remain concerned about the scale of the bank bailouts which will this year push Ireland's deficit to 32pc of everything we produce.