Rehn expects Ireland’s interest rate on €67.5bn be cut to 5% shortly

AGREEMENT on cutting the interest rate on Ireland’s €67.5 billion loan should happen shortly, European Economics Commissioner Olli Rehn said yesterday.

He expected it would be cut to about 5% saving the country €400 million in repayments.

He said the Commission proposed a reduction in Ireland’s rate some time ago.

“I would expect that this kind of an agreement could be reached shortly,” he said, adding that the interest rate should reflect debt sustainability rather than moral hazard.

Negotiations are ongoing between Irish and French officials in particular to get their agreement to cut the interest rate from close to 6% in exchange for Dublin agreeing to discuss the issue of a common consolidated corporate tax basis on foot of proposals from the European Commission.

Germany is understood to be on board while the Commission believes that once the agreement to cut the basic rate is passed by all the member states at the end of June, it should apply automatically to Ireland.

Mr Rehn said the interest rate on the Portuguese €78bn bailout will be about 5.5% but clearly below 6%. It was still unclear the term of the loan with Mr Rehn saying recently it would be for three years but Portuguese sources suggesting a much longer period.

This compares to Ireland’s rate of close to 6% over 7½ years and increases the pressure on the eurozone to agree to a cut to about 5%.

Changes to the Greek plan can be expected on foot of a report from the EU/IMF team which arrived in Athens yesterday to examine progress made in reaching debt reduction targets.

Mr Rehn said that additional aid and varying the terms of Greece’s €110bn bailout package was a possibility while the German Finance Minister Wolfgang Schaeuble indicated he does not exclude such measures.

Any changes that could be made to the Greek deal are being watched closely by the government that has said it would hope to profit from any easing or improvements in the conditions for the struggling eurozone economy.

An EU/IMF team arrived in Athens yesterday to examine the state of the Greek economy and whether it is still on track to meet its targets under the loan programme.

Commissioner Rehn also said it was too early to say what kind of additional aid Athens would need but confirmed that extra help was being considered. “This is now under preparation by the Commission and the euro area countries and the EU and we will return to this in the coming weeks,” he said.

German Finance Minister Wolfgang Schaeuble also said that they will have to wait for the report but did not rule out new measures. “Any speculation is premature and we will take the decisions when we get there,” he said in Berlin yesterday.

The mission should complete their work within the next two weeks but in the meantime ratings agencies have again downgraded the country’s debt well into junk status as fears spread that the country’s debt is unsustainable.

Greece, that is desperately looking for ways to ease the debt burden, is hoping to convince the eurozone to give it a longer time to repay the €110bn.