Interest on bailout could cost us one fifth of our tax take
IRELAND could end up paying one out of every five euro raised in tax on interest on the €85bn EU/IMF bailout.
There was intense speculation this weekend that interest charged on the bailout could be as high as a punitive 6.7pc.
Greece is paying an average interest rate of about 5.2pc for loans of almost €115bn from the European bailout fund.
Fine Gael finance spokesman Michael Noonan urged the Government to take a "hard line" in its talks with the EU and IMF.
He described the suggestion of a 6.7pc rate on the bailout funds as "very disturbing".
"The rate is far too high and is unaffordable on any reasonable projection of growth," Mr Noonan said.
"The Government must take a hard line in its negotiations," he said. "Even though the Government is in its last days in office, it must not abandon the national interest and settle on unaffordable terms in its negotiations."
Other sources said the interest rate had still to be agreed at the talks and given that the loan would be repayable over nine years it could be higher than the 5.2pc charged to Greece, but not as high as 6.7pc.
Under one scenario, the Government's interest payments would have increased from €2.5bn a year to €8.4bn a year by 2014 -- around one fifth of all tax revenue. The figures do not include any borrowing that may be made for extra capital for the banks.
The bailout is expected to be approved before the opening of the markets on Monday, with the talks centring on the reorganisation of the banks, the treatment of their senior bondholders in a "severe" restructuring process, and the rate of interest to be charged on the loans. Reports suggested that up to €15bn from the National Pensions Reserve Fund could be used to recapitalise Allied Irish Banks, Bank of Ireland the Educational Building Society.
Around €35bn of the EU/IMF loan is said to have been earmarked for the banks, but the Government would prefer not to draw on this but keep it in reserve for further contingencies.
It was also suggested that under the terms being worked out with the EU/IMF, Anglo Irish Bank, which has received nearly €23bn of state money, is likely to be shut down relatively quickly.
Meanwhile, the indications were that the bailout deal would be brokered by tomorrow, with European governments on standby to endorse the package through a teleconference of EU finance ministers tomorrow afternoon.