Ireland likely to pay more for its bailout than Greece or Portugal
Lisbon agrees budgetary targets to secure the €78bn loan package on the 4.8pc rate set for Athens
Published 06/05/2011 | 05:00
Ireland could end up paying a higher interest rate on its bailout loans than either Greece or Portugal once negotiations are concluded at EU level within a fortnight.
Portugal yesterday agreed the budgetary targets which form part of its €78bn loan package and early indications suggest the country will end up with an interest rate similar to that of Greece at 4.8pc, while Ireland remains stuck with an average blended interest rate of 5.8pc agreed last November.
While the principle of lowering Ireland's rate has been conceded, a demand from Germany and particularly France for Ireland to give ground on its 12.5pc corporate tax rate remains in place. The issues will be thrashed out at an EU finance ministers meeting on May 17.
Taoiseach Enda Kenny said yesterday: "I expect that Ireland will in due course achieve what's been achieved in principle."
Portugal is effectively stepping out of the bond market for two years to make a series of budgetary adjustments.
Portugal claimed its plan was "more gentle'' than Greece's and Ireland's, but Jurgen Kroger, mission head for the European Commission, said Portugal's programme was "by no means lighter''.
Portugal must immediately start tackling its deficit which stands at 9pc of GDP. It will have to reach a budget deficit of 5.9pc of GDP this year, 4.5pc in 2012 and 3pc in 2013.
While the targets are ambitious, they are actually lower than targets Portugal had set itself before signing up for the bailout package. Portugal has been bedevilled by anaemic growth for many years.
"The fiscal adjustment is demanding, but it's realistic,'' said IMF representative Poul Thomsen at a press conference.
The package breaks into two separate loans, with €52bn from the EU and €26bn from the IMF.
Mr Kroger said the EU hadn't worked out the interest rate it would charge. Effectively the EU borrows the funds, via the European Financial Stability Facility (EFSF), and then adds a margin. In the case of Greece this margin was lowered recently and Portugal may now be able to get a similar arrangement, possibly benefiting from just a 2pc margin.
Financial wires in Europe were last night speculating that Portugal could benefit from a rate of between 4.3pc and 4.7pc.
A backlash over the scale of the bailouts continues, particularly in Finland. A year of crisis management "doesn't work" and "it's a question of time before a default will happen" in Greece, Timo Soini, head of Finland's euro-sceptic True Finns party, told Bloomberg yesterday.
The European Central Bank countered the opponents, with President Jean-Claude Trichet saying Portugal's programme had the "necessary elements to bring about a sustainable stabilisation of the Portuguese economy."
Speaking after the ECB travelled to Helsinki for its monthly meeting, Mr Trichet called on "all countries to be up to their responsibility". (Additional reporting by Bloomberg)