THE ANNUAL cost of Ireland’s international bailout will drop by up to €800 million after euro zone leaders agreed a larger cut than anticipated in the interest rate on rescue loans.
As Taoiseach Enda Kenny declared the conflict with France over corporate tax to be at an end, he said a reduction in the interest rate came without strings attached.
"It's over, c'est fini," Mr Kenny said in reference to the dispute with French president Nicolas Sarkozy over corporate tax. "I had a very cordial conversation with the French president," he told reporters.
“There is absolutely no change in our position in this regard and the matters that you mention were never even raised at the meeting in any shape or form.”
However, the Government has reiterated commitments already made to engage constructively in discussions with its EU partners on proposals to introduce a common consolidated corporate tax base in Europe.
The deal to cut the interest rate came during the course of a 10-hour emergency summit at which euro zone leaders agreed to provide a second international bailout to Greece.
The €109 billion package for Greece was agreed in the expectation that private creditors will provide an additional €37 billion to the rescue effort on a voluntary basis. This will be funded by euro zone countries, the proceeds of privatisations and the anticipated €12.6 billion benefit of a debt buyback programme.
“What we spend for Europe on this we will get back many times over. It’s an investment for the good of our country and people,” said German chancellor Angela Merkel, who has been criticised for the pace of her response to the Greek crisis.
The deal embraces the possibility of a “selective default” being declared on Greek debt, something the European Central Bank resisted for months. However, euro zone leaders have resolved to provide guarantees over any Greek debt which is subject to a default rating.
“We are engaged in a voluntary, not compulsory engagement of the private sector, as in line with our original message,” ECB chief Jean-Claude Trichet said.
“I don’t think the experts who have looked at this consider what has been done would trigger a credit event. We said ‘no’. We continue to say we don’t see that on the cards.”
The summit was hastily arranged last week as the sovereign debt crisis threatened to engulf Spain and Italy as Europe sought to avert the spread of contagion from the Greek crisis.
“There’s definitely a collective determination driven by a desire to keep things together,” said IMF managing director Christine Lagarde.
The reforms will see the annual interest rate on Ireland’s bailout cut by some 2 percentage points to about 3.5 per cent, leading Mr Kenny to predict that the annual benefit to Ireland will be between €600 million and €800 million.
For months, the debate on Ireland’s rate centred on a 1 percentage point reduction.
Euro zone leaders have also agreed to expand the powers of the European Financial Stability Facility, giving it scope to extend the maturity of its loan programme and intervene in secondary bond markets to facilitate bond buyback programmes. Mr Kenny said it was now open to the Government to consider using the fund for those purposes.
The Government will press in separate talks with all 27 member states to cut the interest rate on loans issued by European Financial Stability Mechanism, a fund operated by the EU Commission, by a similar amount. Diplomats also said the Government will seek a cut in the cost of Ireland’s bilateral loans from Britain, Denmark and Sweden.
Mr Kenny said the rate cut will underpin Ireland’s debt sustainability, investor confidence and the recovery of the economy.
He warned, however, that Ireland still had a “massive” deficit to bridge and that there would no impact on the scale of the austerity measures looming in the 2012 budget. “This won’t have an impact on the budget from that point of view but it will ease the debt burden on Ireland and a saving to the taxpayer,” he said.
IMF chief Christine Lagarde is said to have provided strong backing at the meeting for the principle of an Irish rate cut, as did EU Commission chief José Manuel Barroso.