Friday 28 April 2017

Ireland to pay just 3pc on the next tranche of bailout cash

EU raises €4bn in new loans to help dig out Dublin and Lisbon

Donal O'Donovan

Donal O'Donovan

IRELAND is set to pay just 3pc for its next instalment of 15-year bailout loans. The new rate is half what Ireland currently pays, and the same price that AAA-rated France is charged to borrow in the open markets.

The likelihood of drastically lower bailout costs comes after the European Union said yesterday that it borrowed €4bn on the bond markets at 3pc interest and would lend the cash to Ireland and Portugal.

The money was borrowed by the European Financial Stability Mechanism (EFSM), one of two European Union bailout funds.

Under current arrangements, Ireland pays almost 6pc to borrow from Europe, but this is now set to change.

Under a new plan proposed by European Commission president Jose Manuel Barroso, Ireland will be able to borrow cash at the rate Europe raises it, known as the cost of funds.

The EU currently charges Ireland a fee of 2.925pc on top of the cost of borrowing the cash, but Mr Barroso and the commission had called for the extra fee to be scrapped.

Last night, a spokesman for the European Commission told the Irish Independent that European member states had not yet formally approved the Barroso plan but said the change was expected to be in place before the cash raised was loaned on to Ireland.

"The proposal is expected to be approved by the council in the coming weeks," he said.

If Ireland borrows at 3pc, the €2bn loan will cost just €60m a year in interest payments, one of the lowest borrowing costs for any country.

In the markets, the yield on Irish 15-year debt is 8.5pc. That is compared with 3pc that France is being charged to borrow over the same period and 2.9pc that Austria pays.

The German government pays just 2.25pc to borrow in the market, the lowest of any country in Europe, because it is seen as the safest bet to lend to.

Safe

The key to the 3pc rate that the European Union has borrowed at for the bailout funding deal was demand among bond investors seeking a safe investment at a time when markets are battered by volatility.

The European Union bond is seen as safe because it is backed by guarantees from all 27 members of the European Union, while the interest payments are made by Ireland and Portugal.

This week's bond secured strong support in the markets and German and Austrian asset managers and banks are understood to have been the biggest investors.

The second bailout fund, the European Financial Stability Facility plans to sell more bonds in the coming weeks.

Irish Independent

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