Noonan warns of risk to euro from harsh bailout rates
The penal interest rates charged by Europe's bailout funds could threaten the aid programmes and create a situation that was "very bad" for the eurozone, Finance Minister Michael Noonan told colleagues in Brussels this week.
The comments come as Mr Noonan lays the ground for a significant reduction in the interest rate Europe's bailout fund is charging on the €40bn of aid it is loaning to Ireland.
A decision on the Irish issue was effectively parked at this week's meeting of European finance ministers amid a "stand-off" with France, but Mr Noonan yesterday told journalists he used the meetings to put the debate in a wider context.
"There's one view that it is only about Portugal, Greece and Ireland, but it's really about the eurozone as a whole," he said. "You enhance the possibility of the success of a [bailout] programme if you reduce the price [of funds]. Europe needs a win as much as Ireland and Greece and Portugal need a win. . . The failure of any programme would be very bad for the eurozone, the eurozone is in crisis every three weeks."
Mr Noonan said a "lot of" his colleagues had come to him afterwards and said they "agreed with what he was saying".
Ireland was expected to argue for a reduction in its interest rates to bring the country into line with the 1pc point reduction already achieved by Greece, but Mr Noonan yesterday hinted that a more significant cut was merited.
Non-eurozone countries are currently able to borrow money from the European funds without paying any margin, whereas Ireland pays a margin of about 2.9pc and Greece and Portugal pay about 2.15pc.
Those lower rates paid by Greece and Portugal are still "too high", Mr Noonan said yesterday, but he added that he "didn't get into specifics" on whether bailed-out eurozone countries should be able to avoid paying any margin at all.
He was sharply critical of the French for demanding a cut in Ireland's 12.5pc corporate tax rate as a "quid pro quo" for a lower interest rate, describing the French approach as "not the smartest way of ensuring" that bailout programmes succeed.
"The approach seems to be that an extra concession must be given [by any country that wants the lower interest rate]," Mr Noonan said. "I'm trying to explain that that [concession] could impact a programme's success."
Asked about progress this week, Mr Noonan said it "wasn't a good time for bilateral [talks] with the French" since their minister was "a bit pre-occupied with events elsewhere".
France has been rocked by the arrest of IMF boss Dominique Strauss-Kahn, who was in line to strongly contest the French presidency. French Finance Minister Christine Lagarde is now being touted as Mr Strauss-Kahn's replacement at the IMF.
Mr Noonan yesterday added his voice to fellow European ministers in backing a European candidate for the top job in the IMF and said there were "several potential candidates" for the position at this week's meeting of European finance ministers.
Asked when the Irish interest rate cut was likely to be achieved, Mr Noonan stressed that all 27 countries must sign off on any cut. "It [a cut] won't make or break us," he said. "We're not going to give away any of Ireland's vital interests in exchange. . . we regard corporate tax as one of our vital interests."
Swedish Finance Minister Anders Borg also weighed in behind the Irish side, saying forcing a change in the corporate tax regime would be "the wrong way to go" since the measure would "decrease the growth potential of the Irish economy".