Professor Honohan told Reuters yesterday that this would probably be the case given the weaker economic statistics since the last review of the institutions was undertaken last March.
Meanwhile, the rate of interest at which Ireland will pay back the €22.5bn tranche — of the overall EU/IMF bailout — which is coming directly from the European Financial Stability Mechanism (EFSM) will be well above the 5.7% originally estimated by the National Treasury Management Agency (NTMA), another economist told a Dáil Committee yesterday.
Appearing before the Oireachtas European Affairs Committee, Karl Whelan, from the UCD School of Economics, said that the EFSM interest rate could be closer to 6.1%.
“Based on recent developments in market interest rates and the pricing of the first bond issued by the EFSM, I believe this rate could be close to 6.1%,” he said.
While Mr Whelan opined that the EU has not done a good job in explaining how exactly the EFSM works, he said there is still scope for any incoming Government to negotiate a lower interest rate on the European element of the total bailout agreement.
While the interest rate related to the IMF element of the loan package could not be renegotiated by Ireland, the EU component could be “quite different”.
The EU loan package forms part of a wider “political goal” of EU solidarity; where Brussels doesn’t want Ireland to default on its debt and potentially destabilise the entire eurozone.
In that regard, he said, Ireland could be given the chance to effectively get its interest rate lowered to remain on course for repayment. He also said that since Ireland is — to date — the only recipient of a loan via the EFSM, “that could enable us to change the [interest rate] terms” in order to show that it is a system that can be effective.
He added that it is “difficult to know” if Ireland can sustain a high single digit percentage of its GDP going directly on interest payments on its loans.