Tuesday 17 October 2017

Penal interest rate the price of €85bn bailout

Taxpayers stung by massive payback bill

Emmet Oliver Brendan Keenan and Laura Noonan

SOME of the €85bn bailout loans Ireland is to get will cost us a penal 6.7pc in interest -- far in excess of what was expected.

There was shock last night as it emerged taxpayers will have to shoulder a much higher-than-expected interest cost that will run into billions of euro a year.

By contrast, Greece, which earlier this year borrowed almost €115bn from the European bailout fund and the IMF, is paying an average interest rate of about 5.2pc for its loans.

Most of the money we are borrowing is coming from the expensive European Union contingency fund overseen by Klaus Regling, the head of the bailout fund.

That fund will charge 6.7pc a year in interest, a figure that will be hard to bear for a country only expected to grow next year by 2.5pc.

However, other funds involved in the bailout, such as the cash coming from the IMF, will be charged at a lower rate.

Taoiseach Brian Cowen was engaged in talks about the bailout late into the night with Central Bank governor Patrick Honohan and National Treasury Management Agency chief John Corrigan. Finance Minister Brian Lenihan and senior officials from his department and that of the Taoiseach attended the meeting at Mr Cowen's office.

The interest rate disclosure was attacked by the Opposition, which called for an explanation from the Government.

The exorbitant rate of interest emerged as a team of officials from the IMF, the ECB and Europe's finance ministers prepare to sign off tomorrow on the bailout for Ireland. Last night Fine Gael's Leo Varadkar urged the Government to "play hardball".

"It is too high," he said. "It's higher than the average IMF rate, it's higher than the rate that the Greeks are paying and it's a higher rate than we can afford to pay. And if it's true that it's over 6pc then the Government in my view has got to play hardball."

The party's finance spokesman Michael Noonan added: "This rate is far too high and is unaffordable on any reasonable projection of growth."

In a separate development, it emerged that taxpayers will also have to shoulder most of the burden of an €85bn bailout of the country and the banks to be announced this weekend.

Despite intense market speculation, the money loaned to Ireland will be repaid mainly by Irish taxpayers, not investors who put money into the banks.

While so-called junior bondholders will be asked to make a contribution to the costs of the bailout, senior bondholders are to remain sacrosanct as they have a state guarantee that cannot be reversed.

Package

It is understood that the Government will get a €50bn loan to fund the country for the next three years, while the banks will get a €35bn loan. Among the other elements of the package to be announced are:



  • AIB will be nationalised, leaving shareholders nursing huge losses.
  • Bank of Ireland is meanwhile fighting government control and wants to raise any money itself if given "time".
  • Thousands of loans are to be stripped from the banks and moved to another agency or sold to private investors in auctions.


Yesterday markets reacted strongly to suggestions that senior bank bondholders, previously off limits, could have their investments slashed to help the banks raise the additional money. But guarantees given to these investors by Finance Minister Brian Lenihan means this cannot happen.

The perceived threat to Ireland's senior bondholders sent shockwaves throughout international markets yesterday.

"Most of the European credit market has frozen up," said one UK credit market source.

Senior Irish bankers reported a flurry of phone calls from "horrified" investors, as did Irish brokers.

The rumours were being taken less seriously in the US, where many traders had taken yesterday off after the Thanksgiving holiday on Thursday.

Irish Independent

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