IRELAND FACES a tough campaign to persuade its EU partners to reduce the interest rate on its bailout loans and only a modest cut may be in play, European diplomats warned.
After Minister for Finance Brian Lenihan raised the issue with his euro zone counterparts on Monday night, sources briefed on the talks said there was little evidence to date of any significant support emerging for Ireland’s position.
“This is not at the absolute top of anyone’s agenda . . . My own view is that this is very much an uphill struggle,” said a senior European diplomat.
Any possible concession “wouldn’t be a terribly huge or significant decrease,” the diplomat added.
On this front, the point was made yesterday that a reduction in the order of a single percentage point would not amount to “salvation” for Ireland in the context of the drastic cutbacks and taxation increases required under the EU-IMF programme.
Still, the question of reducing the rate is said to have been discussed when centre-right finance ministers met on the sidelines of an EU meeting yesterday.
The annual interest on Ireland’s rescue loans from the European Financial Stability Facility, as the euro zone rescue fund is known, is expected to average around 5.7 per cent.
This charge was purposely set at a “dissuasive” rate to encourage aid recipients to hasten their return to private debt markets.
Dublin is making the argument, however, that paying a steep interest charge increases its fiscal consolidation challenge and stokes uncertainty in the markets about its prospects.
In addition, the case is being made that the perception that the IMF charges lower interest to other countries, raises serious questions around the “political acceptability” of the EU-IMF deal agreed in November.
Although France is said to be cool on the merits of lowering the rate, officials say Germany is not, in principle, opposed to the notion at this stage.
A source said Berlin may be more open than previously to the argument that a high rate could hamper economic recovery but emphasised that the debate remains at a very early stage only.
No agreement on a lower rate is likely until member states settle their crucial differences over the expansion of the scope and scale of the stability facility. Diplomats said EU governments responded badly to pressure from European Commission chief José Manuel Barroso for a final deal on reforms to the facility at a summit on February 4th.
In line with German caution against rushing the debate, ministers are now working to achieve a deal by a summit in late March.
However, Mr Barroso told MEPs in Strasbourg that EU leaders should move “sooner rather than later”.
