Ireland to pay 'commitment' fee over €3.5bn loan from UK
Charge will kick in if Government fails to draw down full amounts
Published 06/07/2011 | 05:00
Ireland must pay an annual fee to the British Treasury if it doesn't draw down the full amounts allowed under its bailout loans each year, the legal agreement between the two countries reveals.
The British government has also covered itself against the chance that Ireland leaves the euro or even the European Union. If this happened, UK loans would have to be paid back immediately, and in sterling, not in euro or any new Irish currency, the legal agreement states.
The £3.2bn (€3.5bn) of loans are the British government contribution to the €85bn bailout package. Unlike the European Union element of the deal, loans from the UK, Sweden and Denmark are bilateral transactions -- loaned directly from government to government.
Under a legal agreement drawn up by international law firm Allen & Overy, Ireland must pay the UK a "commitment fee'' annually on any funds it doesn't draw under the agreement. In effect Ireland will pay charges for having the loan in place. It's the equivalent of a consumer paying a fee for their credit card facility as distinct from paying interest on cash actually borrowed.
The fee is set at 0.5pc of the amount due to be drawn down each year. If the Irish Government decided not to make use of the funds, it would cost €9m under the schedule to borrow €1.8bn in the first year.
The UK authorities have provided a schedule of disbursements to Ireland and if these remain undrawn at year end the fee is applied.
The first year such a fee applies begins when the IMF does its third review of Ireland's programme, which is this week. No money has been drawn down from Britain yet but to avoid the charge, £800m must be borrowed this year, followed by £1.6bn next year and £800m in 2013.
Also disclosed in the legal agreement, which has been lodged in the House of Commons and put on the Department of Finance website, is that the UK may send representatives to Ireland to audit the country's financial position.
That level of oversight 90 years after Independence is sure to prove controversial, despite the fact that the UK was actually far more willing to lend to Ireland and with fewer strings attached than most of our European partners.
According to the loan agreement, the UK is also indemnified if Ireland attempted to pay back the loans in a currency other than sterling.
The agreement ties Ireland into waiving all its rights to use another currency to repay the loans, and if Ireland should leave the euro it would effectively be treated as a default.