Significant victory but it won't ease budget pain -- Noonan
Published 13/07/2011 | 05:00
FINANCE Minister Michael Noonan yesterday claimed a "significant" victory in the battle to make Ireland's bailout more affordable -- but warned a cheaper deal won't do anything to soften the €4bn of cuts in December's budget.
Sources in Brussels suggested the new rate could emerge as early as this Friday, when European leaders meet for a special summit to agree the new bailout framework.
Mr Noonan's comments came after European finance ministers agreed late on Monday night to overhaul the bailout fund that has already given aid to Ireland, Greece and Portugal amid fears it may soon be called on by embattled Italy.
"It [the revamp] holds out the prospect of a greater reduction," Mr Noonan said yesterday.
"But already there are individual countries that are trying to peg the reduction in interest rates to 1pc."
Ireland has spent months trying to push Europe for a reduction of 1pc, which would save about €450m a year. A bigger reduction would be a major coup, although Mr Noonan cautioned that the size of the rate cut had "not yet been decided".
The crisis eased yesterday after Italy sold €6.75bn of 12-month bonds in its first auction since borrowing costs began soaring amid contagion from the Greek debt crisis. The treasury in Rome said it sold the bills at an average yield of 3.67pc, compared with a yield of 2.147pc when similar securities were last sold on June 10.
Mr Noonan admitted speculation that Italy could need a €900bn rescue had cast a shadow over the new developments, which would have left him "euphoric" at any other time.
Revived hopes of an interest rate cut follow a protracted stand-off with France, which has spent months insisting that Ireland would have to raise the corporate tax rate to secure any cut. Taoiseach Enda Kenny said yesterday that France was still the one country objecting to the rate reduction and talks were continuing.
Following a meeting with European Parliament president Jerzy Buzek, Mr Buzek said there was strong support in the parliament for a cut in Ireland's borrowing costs.
In Brussels, Mr Noonan said that this week's discussions on an interest rate cut were taking place in an "entirely different context" to France's previous demands, but he refused to rule out objections from France.
Mr Noonan downplayed the significance of the fact that Europe had not agreed any firm proposals for revamping the fund, and that firm measures could take months to agree, if agreement can be found at all.
"I've learned that if ministers think they can't carry a proposal through their parliaments, they don't allow it to be included in a communique [like Monday night's]," he stressed.
As well as cutting the interest rate on the €40bn it's borrowing from Europe, Mr Noonan said the new measures could give Ireland longer to repay loans and make it easier to return to the markets for funding.
"It's a very significant step in the road toward having a programme that is better tailored toward Ireland's needs," Mr Noonan said.
Despite that "significant" step, Mr Noonan quashed hopes that the cheaper bailout could take the sting out of December's budget, where the Government looks set to pull €4bn out of the economy through tax hikes and spending cuts.
While the lower cost of the bailout "will be reflected in the budgetary arithmetic", the impact was "likely to be over the medium term to long term", Mr Noonan said, hinting at easier budgets in 2012 and 2013.