Cut to interest rate secured without corporation tax hike, says Noonan
The interest rate will be cut without corporation tax being changed.
But even as the minister was celebrating the breakthrough, EU leaders called an emergency summit for Friday as the markets continued to worry about the euro and contagion spreading to Italy and Spain.
In a dramatic turnaround, finance ministers appeared to agree to some form of Greek default and a series of measures to make it easier for Ireland, Greece and Portugal to reduce their debt.
Mr Noonan, who has said the €9 billion profit eurozone states stand to make from Ireland’s loans was excessive, said he could not quantify what the proposed new deal will save the country.
But he warned it would not come in time to significantly alter the budget he is preparing for later in the year, which will see up to €4bn cut from Government spending.
Mr Noonan said Ireland would get its long-sought cut in interest rates, although the exact reduction has still to be worked out.
It could be reduced from 5.8% to 4.8%, but other sources suggest the reduction could be even more.
Asked if this meant that the corporation tax rate change demanded by France was off the table, Mr Noonan said, “It’s in a different context now... there is no suggestion that a quid pro quo will be needed.”
France would no longer be able to veto a cut to the interest rate because it would be part of the new pricing structure for the European Financial Stability Fund (EFSF), officials said.
The need for a buffer will also be dropped — the EFSF borrowed €27bn for Ireland and loaned us just over €17bn, with the excess buffer acting as a guarantee. This reduces the sum on which interest is paid by around €10bn.
Mr Noonan said another prospective change for Ireland is that the EFSF would lend to the country to buy back debt on the markets at the reduced rate investors are now selling them at.
But one of the major advances that he believes will be very significant for Ireland is that the fund will give guarantees for money which the country borrows on the open market.
“I have been pressing for a guarantee for a long time. Its and easier way to get back into the market if Triple-A fund can guarantee bond issues by Ireland when we get back into the market in a year to 18 months time — there will be caps and regulations, but the guarantee is another advance,” he said.
The details of the changes have to be worked out by experts over the next few weeks and finally agreed by the member states and their parliaments.
However, Mr Noonan was confident there was no going back on the changes agreed in principle.
“The ministers say they stand ready to adopt — not to consider, not to propose. In my four months coming here, if ministers think they cannot carry a proposal through their parliaments, they won’t allow it onto the communique — this is a signal that they will get it through their parliaments.”
To deal with possible contagion spreading, finance ministers are willing to allow the EFSF to extend temporary credit lines without demanding austerity programmes, which will allow countries in difficulty to raise money on the markets at a reasonable rate.
