Friday 24 November 2017

Ireland will pay 25pc more than Portugal for EU cash

Higher interest rate and mix of bonds fuel rescue loan disparity

Donal O'Donovan

Donal O'Donovan

IRELAND will pay around 25pc more than Portugal for EU rescue loans released next week. It's thanks to our higher interest rate and the mix of bonds used to fund the loans.

Ireland will pay 6.425pc for its share of the loans compared to Portugal's 4.96pc.

The two figures are not directly comparable because the Irish loans are for 10 years and Portugal's are a mix of five and 10-year loans.

On a like-for-like basis though, Ireland's higher interest rate means we're paying 6.425pc for 10 year loans while Portugal pays 5.68pc.

The European Commission sold €4.75bn of 10-year bonds that will go to Ireland and Portugal, and €4.75bn of five-year bonds that will only go to Portugal.

The EU is paying 3.5pc to borrow over 10 years, and 2.75pc to borrow over five years.

The EU adds a 2.95pc premium to its borrowing cost when it lends on the cash to Ireland.

Up to now, Ireland has only drawn down cheaper five-year bonds, but the mix of what we receive is decided by Europe.

That was supposed to work out at 5.8pc on average but the new figures bear out UCD professor Karl Whelan's fear that Ireland was always likely to pay more.

In Whelan's view EU borrowing costs were already on an upward trajectory, simply because general interest rates are on the rise.

The latest interest rate highlights the urgency of driving forward with a renegotiation of the original Irish deal, if only to get back to the original levels.

Details of the loan pricing comes after the European Commission raised money for the rescue loans by selling two sets of bonds this week.

The EU has now completed three sales of five-year bonds since January, each at different interest rate.

In January the EU paid 2.59pc to borrow for five years, in March 3.257pc and it's now paying 2.75pc. The cost for Ireland is arrived at by adding a 2.95pc premium on top of what the Commission pays.

The changing rates highlight just how unpredictable the true cost of the bailout has become.

Last night British MEP Sharon Bowles described the conditions attached to the Irish loans as outrageous.

Bowles, who chairs the European Parliament's Economic and Monetary Affairs Committee, is on a visit to Ireland.

She said Ireland had done what was demanded by the ECB so there is no reason why countries lending to us should turn a 3pc profit. The Labour MEP is due to speak at the Irish Institute of European Affairs today.

(Additional reporting Bloomberg)

Irish Independent

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