States like Ireland can borrow from stabilisation fund 'at 5pc interest'
Ireland and other indebted countries would be able to borrow from the European stabilisation fund at 5pc, the head of the fund indicated yesterday.
However, Klaus Regling said his "expectation'' was that no further European countries, apart from Greece, would need to access the fund. Mr Regling is known in Ireland for carrying out a report on the roots of the banking crisis.
Mr Regling said the interest rate on any European Financial Stabilisation Facility (EFSF) loans to countries would be "comparable" to the 5pc rate that Greece pays for its emergency funding from fellow euro-area economies. "There is a general understanding that borrowing costs would be comparable to the Greek case," he said.
"This is around the 5pc."
Ireland's borrowing costs currently stand at 6.3pc in the market, but while switching to a cheaper form of funding would be attractive, it would involve a huge loss of sovereignty.
Ireland would also have to meet a string of binding economic and budgetary conditions set by other EU member states.
Speaking in Brussels, Mr Regling claimed yesterday that the worst of the euro debt crisis was over. "Europe has taken decisive action to tackle sovereign-debt issues," he said.
"European governments have done a great deal in recent months to put structures and policies in place to address the problems," he added.
The EFSF was set up on June 7, 2010, and has €440bn of funding available, with a separate sum to be provided by the IMF.
The loans are only available following the submission of a request from an EU member state. Once the request is made and accepted the borrowing country must draw up a memoranda of understanding with the European Commission.
This agreement covers "budgetary discipline and economic policy'' and countries must comply with the agreements over the period of the loans. It is not clear what kind of additional austerity accessing the fund could involve, but in a worst-case scenario Ireland's corporation tax rate of 12.5pc might come under pressure.
Meanwhile, Mr Regling said the stabilisation fund did not want to jump ahead of other providers of funds like the IMF when it came to the creditors list.
He said that if the stabilisation fund jumped ahead of other lenders in the queue to be repaid, it might put off the private sector.
"It was a deliberate decision not to suggest that for the EFSF," he said.
"If there are too many senior claims on a country, then the private sector may be reluctant to go back to that country."