Ireland set to borrow up to €67.5bn over next three years

THE full extent of the debt millstone Ireland will have to drag through the next decade has become much clearer.

During the next three years the country will borrow between €42.5 billion and €67.5bn from the IMF, the European Financial Stabilisation Mechanism and the emergency European Financial Stability Facility fund. It will draw loans from Britain, Sweden and Denmark.

The amount will depend on the money needed to fund the banking sector and, if the maximum €67.5bn is drawn down, the country will end up paying an anticipated €9.6bn a year to service the interest on our national debt.

This will be paid off over the next seven and a half years.

The average interest rate will be 5.83%, 0.13% higher than the worst-case scenario built into the targets set in the Government’s four-year plan announced last week.

This will vary based on when the money is accessed and the prevailing trends at the time.

The higher interest rates, coupled with the prospect of high demands from the banks, mean interest payments are likely to hit €9.66bn a year by 2014 — almost four times the 2009 repayment figure. This is €1.2bn more than allowed for in the four-year plan and effectively amounts to an additional austerity budget after the 2014 target.

In terms of taxpayers, for every €1 taken in through taxes in 2014, €0.23 will be spent on interest costs.

Meanwhile, the national debt is expected to increase to 118% GDP if the banks borrow the full amount, which will push the figure to an approximate €206bn, more than six times the pre-crisis level.

The €22.5bn loans provided through the European EFSF will be the most expensive. The European Commission funding will be lower, which benefits Ireland because it is providing a larger than expected portion.

The IMF’s €22.5bn will come cheaper than what is being offered from Europe. Ireland opted to take the IMF portion out under an extended fund facility, instead of the more common short term emergency package.

This will be for terms of between four and a half and 10 years with interest rates hitting 4% to 5.7% based on current market rates. This will vary depending on the average yield for American, British, Japanese and euro-area money on the day the loan is tapped into. Together this pot will keep the country funded for the next three years, with an optional extra year of support from the IMF.

Fine Gael Finance spokesman Michael Noonan said: “The Government was cleaned out in the negotiations and has not acted in the best interests of Ireland.

“At the very least we could have expected a low rate of interest on the loans, EU agreement on a jobs and growth package, and agreement to share the cost of rescuing the banks with the bond holders. The Government came away with none of these,” he added.