Boost for hopes to reduce bailout rate

IRELAND’S campaign to have the EU reduce the interest rate it charges for the €67.5 billion emergency aid received a boost last night after finance ministers met in Brussels to overhaul the loan facility.

While the discussions are at a very early stage, cutting the interest rates could form part of the final package of a reformed EU mechanism to help out countries under pressure from the markets according to eurozone head, Jean Claude Juncker.

“In general terms, the lowering of interest rates of the countries concerned was discussed, but not in sufficient detail to produce an outcome. It will be part of the ingredients of the components of the comprehensive package we will produce,” he said.

Finance Minister Brian Lenihan, however, said that getting them to cut the penal 3% the EU charges Ireland on top of what they borrow the money for will not happen overnight.

Germany is firmly against getting rid of the 3% margin as they say that would turn the facility into a eurobond but might be persuaded to lower it. Berlin insisted on adding the charges to ensure countries would access the fund only as a last resort.

Mr Lenihan appeared to believe that it was possible to have it lowered at least. But, he warned, it would happen only through “hard, unrelenting work here with all member states… My intention is to ensure that Ireland can get a better deal”.

The minister was able to announce one small piece of good news. The IMF will cut its average rate of 5.7% by 15 basis points to 5.55%, because of a technical point where Ireland has a larger share of the IMF quota because of rule changes agreed two years ago.

Last night’s talks centred on making the €440bn European Financial Stability Facility more flexible. Some countries suggest the overall sum should be increased or at least the amount of the facility that can be used.

Ministers from the six eurozone countries with a Triple A credit rating — France, Germany, Austria, the Netherlands, Finland and Luxembourg — held separate discussions before the main meeting to see how the fund could be increased without losing its top rating.

Dutch minister, Jan Kees de Jager, said they were prepared to look at how they could make the full sum available. Effectively they can loan just about €250bn from the €440bn because of the need to provide a buffer sum to compensate for those non-Triple A rated countries in the facility.

Mr Juncker said they were looking in detail at how to increase the funds available.

“We are looking at a number of solutions and are checking out a number of options,” he said afterwards.

They also discussed allowing the fund buy sovereign bonds on the secondary markets, Mr Juncker said, a move that would take pressure off the ECB and allow them to reduce their activity in this area.

He refused to say when the work will be complete but said the proposals for the follow-up to the EFSF, the permanent mechanism to be installed in 2013, would be ready to be presented to EU heads at the March summit.

The European Commission, in an effort to force member states’ hands, unveiled plans to make the EFSF much more flexible.

As well as increasing the amount of money available they suggest extending its scope by using the money to provide short-term temporary assistance to countries that abide by the euro area rules but are facing difficulties in the markets.