Lagarde departure dents hope of loan rate cut

IRELAND’S bid to reduce the EU/IMF loan interest rate, which could save the country up to €1 million a day, suffered a blow last night as France’s finance minister said she could not deliver any such deal.

However, a change in the rules governing the EU’s rescue fund was greeted as a breakthrough because it increases the country’s chances of being able to borrow at affordable rates next year.

Despite indications that a reduction in the loan interest rate from 5.8% to 5% was a done deal, those hopes were dashed within hours by Christine Lagarde’s almost certain appointment as IMF managing director.

Finance Minister Michael Noonan, who had spent months building a relationship with Ms Lagarde, admitted he would have to start again with France’s new finance minister.

Ms Lagarde was attending what could be her final eurozone meeting and told Mr Noonan bluntly that she could not deliver.

“She is taking up her position in Washington by the end of this month and, as a consequence, there will be a new French finance minister,” said Mr Noonan. “I don’t know who he or she will be and I certainly have not met them. So I will have to sit down and talk to them and see what the deal is from their perspective.”

There were indications last week that French President Nicolas Sarkozy was willing to forgo his demand that Ireland increases its corporation tax rate in exchange for an interest rate cut.

However, Mr Noonan said he did not believe the issue would be raised at a summit in Brussels later this week, which Taoiseach Enda Kenny will attend with other EU leaders.

Ireland has received support from the IMF in resisting French demands for changes to the corporation tax rates after the body’s European director, Antonio Borges, said that while they favour convergence in many ways across the eurozone “this does not mean complete harmonisation of everything”.

However, finance ministers have agreed to change the rules on the European Stability Mechanism, the EU’s rescue fund due to come into force in mid-2013.

The fund, backed by eurozone countries, had preferential status, meaning it would be paid back before any other creditors.

Mr Noonan said this would put off ordinary investors who feared they would be at the back of the queue when it came to getting their money in the event of Ireland receiving a second bailout.