EU agrees to cut bailout rate and backdate it

IRELAND’s interest rate on its EU loan will be cut and the reduction backdated, following agreement by EU finance ministers on the new terms for the European Financial Stability Fund.

The new rate is due to come into force at the end of June when national governments approve the changes to the fund. It could save Ireland an estimated €330 million a year in interest payments.

The reduction will help to offset the ECB’s interest rate increase to 1.25% from 1% which will be applied to the €40.2 billion part of the loan that comes from EU funds.

The cut will not be at the expense of the country’s low corporation tax rate, Finance Minister Michael Noonan said. “There is no question of a concession being made on the corporation tax. Everyone is very aware of that now.”

The minister said he is pushing to have the new rate applied to Ireland as quickly as possible, or at least before big sums of money have to be paid out to recapitalise the banks and before the first interest payment on the loan is due in December.

Mr Noonan told journalists at a meeting in Budapest that the rate reduction had been conceded at the Taoiseach’s first EU summit in March.

“The date of the implementation of that decision is in question, not the fact that the interest rate reduction applies to Ireland’s borrowings,” he said.

The fact that the EU has finalised the full rate reduction for the Greek €110bn loan could be a major development for Ireland, he said.

However Eurogroup president Jean-Claude Junker said the interest rate cut for Greece would be backdated. Belgian finance minister Didier Reynders said: “We need to apply the level playing field and the same solution for the countries.”

European Economics Commissioner Olli Rehn said: “A reduction in interest rate needs to take place also for Ireland.”

Mr Noonan conceded there were still “some outstanding matters of concern” to the French and Germans. He met German finance minister Wolfgang Schauble yesterday and emphasised to him the importance of the rate cut. “He understood that point,” he said. He was also due to meet French finance minister Christine Lagarde.