Ireland has ‘strong case’ for rate cut

IRELAND had a strong argument for having the EU and IMF reduce the rate of interest they are charging the country for loans due to total €67.5 billion, according to an EU official.

There are fears that Ireland’s case will not be pushed sufficiently over the coming weeks while the country waits to elect a new government and lacks ministers dedicated to winning the support of other EU states.

An EU official talking said: “A significant cut in interest rates would not be easy. But Ireland has a strong argument on the basis of debt sustainability”.

A growing number of commentators are pointing out that the higher the interest rate Ireland and Greece have to pay the more difficult it is for them to pay off their debts.

Fine Gael’s finance spokesperson Michael Noonan has said this is one aspect of the country’s agreement with the EU and IMF that his party would hope to renegotiate if in power after the election.

Mr Noonan, who is tipped as the next finance minister, told the Financial Times that the interest rate and the possibility of debt restructuring, including cutting the sums due to bondholders, were on their agenda.

Lorenzo Bini Smaghi,a member of the ECB executive board, told RTÉ that a new Government could not “renege” on what was agreed and ratified in Dáil.

“It doesn’t happen when you have a change of government the next government reneges on commitments,” he told Prime Time last night.

Chancellor Angela Merkel has indicated Germany would be willing to soften its stance on the rate of interest charged. Germany had insisted that on top of the interest being paid by the Commission and the intergovernmental European Financial Stability Facility (EFSF), a margin of 3% penal interest must be added.

The result has been that Ireland will pay about 6% on its borrowings in total.

Irish officials have warned that any cut in interest could be small, in the region of 0.1% and the effect would have to be offset against whatever conditions Germany and other economically strong countries would demand.

Chancellor Merkel has said that she would like to see limits on government debt and deficits being written into countries’ constitutions as it is into Germany’s, which would likely require a referendum in Ireland.

The EU leaders summit on next Friday will discuss the emerging plans to restyle the EU’s rescue facility but no final decisions are likely to emerge until the summit at the end of March.