Better deal may be on cards as EU considers rate cut
Published 01/03/2011 | 05:00
THE new government's hopes of securing a better bailout deal moved a step closer yesterday after the EU vowed to carry on supporting Ireland's economic recovery.
There is a growing sense in Brussels that the 5.8pc average rate Ireland is paying to borrow €45bn from the EU's two rescue funds will hinder growth and lumber the State with an additional debt burden.
"We have a common goal for Ireland to revive its growth dynamic and succeed in ensuring debt sustainability," European Commission economics chief Olli Rehn said.
A lower interest rate will only be granted as an add-on to a wider plan to save the euro, which is being thrashed out in Brussels.
Fresh from leading his party to a landslide victory at the polls, Fine Gael leader Enda Kenny has vowed to fight for more lenient loan rates. He also said he would try to renegotiate other key elements of the deal, including the reduction of the national minimum wage.
Mr Kenny is also continuing to push for investors holding just over €20bn in unsecured, unguaranteed bank debt to suffer some of the burden of the losses. This option has been categorically ruled out by the EU.
The commission again insisted yesterday that the deal already agreed, involving EU and International Monetary Fund loans, was the right one.
"We look forward to continue supporting the Irish people and the next Irish government in the implementation of the EU-IMF programme, which is key for Ireland's economy and its revival," Mr Rehn added.
But Mr Kenny will insist his election gives him a mandate to change the bailout terms, and he will begin the debate at talks in Helsinki on Friday with fellow centre-right political leaders across Europe.
A summit of all EU leaders in Brussels on March 11 will be crucial, when plans will be discussed for a new EU system for future bailouts after the temporary system -- used to finance Greece and Ireland -- expires in 2013. But they are still at odds over what measures to take, with Germany arguing against radical reforms.
Germany is unwilling to stump up extra guarantees for the fund or relax the bailout terms without an agreement from the bloc's weaker members to reform their economies.
On the chopping block under that plan is Ireland's 12.5pc corporate tax rate, which many in Europe see as unfairly low. Yesterday Luxembourg Prime Minister Jean-Claude Juncker said he expects euro-area countries to reach an agreement on a plan to end the debt crisis within the next two weeks.
Meanwhile, there was a positive reaction in the bond markets to the general election results yesterday.
Investors welcomed the fact that the incoming government will most likely not have to rely on a mix of Independents to pass legislation and the cost of insuring Irish government debt against default fell by a fifth of a per cent on Monday to 5.75pc.