THE Government has been forced into an embarrassing climbdown and taken the issue of looking for a cut in the loan interest rate off the table ahead of today’s EU summit.
Despite promises made during the election and afterwards, Taoiseach Enda Kenny will now be hoping that nobody else raises the issue either and demand an increase in corporation tax in return.
Ireland’s woes could be well down the agenda as Portugal takes centre stage after prime minister José Sócrates tendered his resignation having lost a parliament vote on fresh austerity measures. This is expected to trigger a bailout.
Mr Kenny, attending his second summit in two weeks, is expected to tell fellow leaders that while he continues to be interested in cutting the cost of Ireland’s €67 billion loan, he will wait for the results of the bank stress tests.
This is the latest blow for Ireland as the cost of borrowing shot up this week with markets fretting over the implications of the new EU bailout mechanism for bondholders and the decision to put off finalising it until June.
Attitudes in France and Germany have hardened against Ireland after Mr Kenny turned down a commitment to discuss tax issues generally. An EU diplomat said: “Mr Kenny thought the offer was a trap. But his campaign-like speech irked Merkel and Sarkozy and now France and Germany have dug in.”
Now the main item on the two-day agenda is expected to be Portugal.
Just when the Taoiseach will get an opportunity to look for the cut in interest rate from 5.8% to 4.8% saving the taxpayer €450 million a year in repayments is not clear.
It is understood the Mr Kenny has the bank figures now but sources said the Central Bank and the Regulator advised that it was better to wait until the full results were completed.
The details will be released next Thursday and are expected to show the banks need more than the initial €10 billion, maybe more than the €25bn in contingency funds.
This could see the government going back to the EU/IMF looking for additional funds. Meanwhile, Finance Minister Michael Noonan needs to convince the ECB to commit to funding the banks in the medium term and to slow down the process of selling off non core parts and loans under €20m.
A government spokesperson said: “A reduction in the interest rate and facilitating it is something that the Government wants to progress and that continues and will continue into this weekend.”
The Government will be hoping to take the interest rate issue away from EU leaders altogether and have finance ministers deal with it, probably at their informal meeting in two weeks.
But diplomats are saying the EU/IMF programme is not working in terms of giving the markets confidence in Ireland’s economy and its ability to pay. Confidence will take a further hit if Portugal seeks a bailout.
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