Glimmer of hope as EU tweaks bailout rules
Interest rate cut still on table as crisis talks go on
FINANCE Minister Michael Noonan was last night hoping a new EU move would help us return to normal borrowing on international markets within two years.
The Government was also cautiously more upbeat about securing a cut in the interest rate on the bailout by the end of next month.
Behind-the-scenes talks between Ireland and France on the interest rate have intensified in recent days, government sources said.
The EU yesterday put a 'firewall' in place to protect Ireland and Portugal from the worsening crisis in Greece.
By making changes to its giant bailout fund, the EU hopes to convince investors to start lending to Ireland again by the end of 2012 or the start of 2013.
Changing the rules of its future bailout funds, the EU put private lenders on the same footing as European governments.
This means both sides will have the same rights to repayment if a country cannot cover all of its debts in future.
Up to now, private investors were concerned that governments would have the first call on repayment funds, so they were not interested in lending to countries already in a bailout for fear they wouldn't get their cash back.
EU finance ministers meeting in Luxembourg also agreed to increase the size of the European Financial Stability Facility (EFSF) to €780bn from the current €440bn.
On top of that, the ministers also made an important change to the future rescue fund.
The so-called European Stability Mechanism (ESM), which will come into force in mid-2013 when the EFSF expires, will not have 'preferred-creditor status' when it helps countries that have already been bailed out, said Jean-Claude Juncker, the Luxembourg prime minister who also chairs the meetings of eurozone finance ministers.
They hope this important change will help already-bailed-out countries regain access to debt markets.
The changes mean that private investors should now have more confidence in countries like Ireland that have received money from the bailout fund.
The 'preferred-creditor status' was spooking US investors and deterring them from lending to Ireland, Mr Noonan claimed.
"This is very good news for Ireland -- it will help us get back into the markets," he said.
"No matter how well we were doing under the programme, it was blocking us potentially from getting back into the market."
Taoiseach Enda Kenny also welcomed the changes to the ESM as "positive for Europe and not just Ireland".
Meanwhile, eurozone finance ministers gave Greece two weeks from Monday to approve stricter austerity measures in return for another €12bn in emergency loans, piling pressure on Athens to get its ragged finances in order.
After two days of crisis meetings, the ministers effectively issued Athens an ultimatum, saying that the Greek government, parliament and broader society had until July 3 to approve a new package of spending cuts, tax hikes and privatisation measures in order to receive the next tranche of EU/IMF aid.
National Treasury Management Agency (NTMA) chief executive John Corrigan, said that the changes to the EU bailout terms were a "helpful" step for Ireland's return to the international money markets.
The NTMA will try to tap outside investors for cash in late 2012 or early 2013, before the existing EU-IMF loan programme officially ends.
In a further development, the Government was slightly more upbeat last night about breaking the stalemate over the interest rate cut.
French President Nicolas Sarkozy is demanding a hike in our corporation tax for a cut in the bailout interest rate.
But a coalition source said there was now "more progressive engagement" with France on the 1pc interest rate cut on our bailout funds and said Germany was increasingly comfortable with the reduction.