Leaders insist loan will dispel doubts about stability in EU
Published 29/11/2010 | 05:00
THE EU's top policymakers last night hailed as "very important" the decision to offer Ireland a €67.5bn contingency loan.
"These are very important decisions that should decisively address the current nervousness in financial markets," economics chief Olli Rehn said.
"The EU-IMF programme for Ireland... constitutes a decisive element to help dispel any doubt about Europe's ability to safeguard financial stability in Europe," he added.
The bailout was an open secret after a week in which markets rounded on Ireland, Portugal and Spain, with EU chiefs fearful that the Government's money problems could infect the other 15 members of the single currency zone.
"It's evident that the ensemble of countries in the eurozone are being closely followed by the markets," said Didier Reynders, Belgium's finance minister and chair of the wider meeting of 27 finance ministers, who denied that a loan for Portugal was discussed at the meeting.
Luxembourg's premier Jean-Claude Juncker, who leads the group of eurozone countries, said the conditions attached to the bailout would be based on the "strong fundamentals" of the Irish economy and would include a banking system overhaul, "growth-enhancing" labour market reform and an extra year to help reduce the massive 32pc of GDP budget deficit to below the EU's 3pc target.
The Government now has until 2015 to shave the requisite amount off its spending.
The bailout package -- which was agreed unanimously by the 16 eurozone finance ministers and their 11 non-eurozone counterparts -- will include bilateral loans from Britain, Sweden and Denmark, as well as a €17.5bn contribution from the national pensions reserve fund and existing cash reserves.
The Irish contribution brings the total loan package to €85.5bn. The International Monetary Fund's contribution makes up one-third of the non-Irish portion of the bailout, or €22.5bn, with EU countries footing two-thirds of the bill.
The bilateral loans -- €3.8bn from Britain, €598m from Sweden and €393m from Denmark -- are significantly lower than forecast, owing mostly to the fact that much of the financial burden will be shouldered by Ireland.
The interest rate on the loans -- which will be confirmed at a further meeting on December 6 -- is expected to be 5.8pc on average for a seven-and-a-half year term, Finance Minister Brian Lenihan said.
Mr Rehn said it would be "close to or around 6pc".
There will be no haircuts for senior bondholders as part of the deal, although Mr Lenihan had floated the idea during talks on the terms and conditions of the package.
However, the suggestion was binned after serious opposition from the European Central Bank and Commission, who are worried that shafting investors in Ireland would hammer investor confidence in other eurozone countries.
"There will be no haircut in senior debt, or sovereign debt," Mr Rehn insisted.
Mr Lenihan told the Irish Independent after the meeting that legislation will be brought forward in the next few weeks to give the State "more control over the banking sector".