Ireland may not benefit from lower fund interest rate

EU LEADERS are set to approve a lower interest rate for any country borrowing from the European Financial Stability Fund (EFSF).

The move will come as a two-day summit of leaders in Brussels begins today.

However, Ireland will remain the exception, paying 3% above the rate that the EFSF pays to raise the money on the markets, rather than the new 2% rate. The savings could be as much as €350 million a year.

For Ireland the cost is close to 6% and despite the change and the cut being agreed for Greece and Portugal, it will not automatically apply to Ireland.

Instead Taoiseach Enda Kenny will have to wait until French President Nicolas Sarkozy lifts his veto on the rate cut. However, he is adamant he wants Ireland to increase its corporation tax rate — a move Ireland has firmly rejected.

A previous offer to “engage constructively” in a pan-EU tax calculation for multi-national companies has been rejected by France. It knows that the Common Consolidated Corporate Tax Base (CCCTB) will never go through as few, if any, countries now favour it.

Negotiations continue behind the scenes but with the departure of French Finance Minister Christine Lagarde for the IMF, the Irish will be depending on her successor being able to persuade Mr Sarkozy.

Greece will overshadow the summit as the future health of the euro remains in the hands of the Athens parliament, and the unpredictable markets.

The heads of governments of the 27 member states will be looking for wording to involve private holders of Greek debt in the planned second bailout package for the country that does not trigger a default.

The figure for the second loan, on top of the €110 billion agreed last year, is said to be in the region of €70bn of new money but sources said the leaders were unlikely to agree on the sum or the length of time over which it could be lent.

They will, however, give a commitment to fund Greece for at least another year — a requirement by the IMF for contributing its share of the fifth tranche for Athens, totalling €12bn to be paid in July and without which they run out of money within weeks.

Already criticised by both the IMF and the US Treasury Timothy Geithner for their handling of the crisis, the leaders will be hoping to avoid any banana-skins that could unsettle markets further and expedite contagion to countries like Ireland.

A raft of new laws allowing the EU to oversee and direct national budgets are unlikely to be voted through just yet.

Croatia becoming the EU’s 28th member is expected to get the thumbs up but some countries, wishing to keep them under pressure to make the changes required in both their laws and economy, do not want to give them a date for accession yet. The date is widely expected to be July 1, 2013.