Ireland could get long-term cheap loan

THE Government could win a significant victory at next week’s EU leaders’ summit with up to half the debt being hived off into a long-term cheap loan and no pressure to burn bondholders.

The shape of a deal opening the way to greater economic union became clearer during a speech by French President Nicolas Sarkozy last night.

In a 50-minute speech, Mr Sarkozy told 5,000 supporters gathered in Toulon that there would be no more debt write-downs after the current deal being negotiated for Greece.

The Irish Government has been lobbying for an opt-out to private sector involvement under the future bailout fund that will probably be introduced next year, but up to now Germany has been anxious to retain this option.

Mr Sarkozy, readying the French public for a range of concessions he will make to German demands during next Friday’s summit, said: “It must be made clear that a debt of a euro member will be repaid.”

He added that it was a “question of confidence” — the point the Government has been making in relation to Ireland.

Ireland could also find its debt effectively halved under a proposal German finance minister Wolfgang Schaeuble plans to make at the summit. This would see a 20-year loan to cover all sovereign debt over 60% of GDP and was proposed by the German Council of Economic Experts.

Ireland’s debt is expected to come close to 120% in 2013 and a low-interest rate loan to be repaid over a long timeframe would ease the burden on taxpayers.

In what is seen as a major plank in his re-election campaign for next year, Mr Sarkozy spoke of the need for greater economic union.

He said: “If living standards, productivity and competitiveness gaps widen among eurozone countries, the euro will sooner rather than later be too strong for some and too weak for others, and the eurozone will explode,”

A number of points he made indicated concessions he is making to German Chancellor Angela Merkel, including that the ECB be made independent of politicians. He has eased off on insisting they need to take action over eurozone countries’ sovereign debt.

He also said France will, like the other euro area countries, put the “golden rule” of having a balanced budget in their constitution.

But in an attempt to avoid Paris being told to reshape its budget by the European Commission, Mr Sarkozy said closer integration would be done inter-governmentally. He framed this as the alternative to “supra-nationality”.

Smaller countries in particular would favour having the European Commission in charge. He is due to meet Ms Merkel in Paris on Monday, when the final difficulties between them are expected to be ironed out.

Ms Merkel will address the Bundestag today, when she is expected to give further details of what the measures are that she sees as resolving the crisis and which are likely to form a large part of proposals that the EU Council president is expected to put to the member states leaders on Friday.