Michael Noonan (Limerick East, Fine Gael)

I thank the Minister of State for his explanation of the Bretton Woods Agreement (Amendment) Bill 2011. Fine Gael has no problem with this legislation, which is technical in nature and amends the Bretton Woods Agreements legislation to incorporate therein what has been already decided and agreed by the Government. Fine Gael agrees with what is occurring.

The Bill provides us with an opportunity to speak about the work of the IMF in general and to make some points in that regard. Until recently, the IMF was a pretty remote organisation in Irish politics. In most people's consciousness it was associated with assistance to under-developed countries. Those of us who served on the Joint Committee for Foreign Affairs are aware of its activities and of the lobbying by various interest groups for certain changes in the way the IMF operates in Third World countries. Submissions are being heard today from one of those organisations, namely, Debt and Development Coalition Ireland. While I note its recommendations, I do not believe this Bill is the appropriate vehicle to address the suggestions made by it. The organisation has contacted many Members of the House, who are generally sympathetic with the points made.

However, the IMF has become more relevant to Irish life recently because it is a participant in the bailout package for Ireland. Last Wednesday in the House I asked the Minister for Finance whether he was prepared to renegotiate a lower interest rate on the EFSM fund, which contributes to the package. Generally, the IMF is treating Ireland the same as any other country and the interest rates applicable to the portion of the package coming from the fund are calculated on the same basis. There are two other European-based funds but the EFSM provides the most funds. This new fund and the interest rates it charges are penal. The first tranche of funds applicable to Ireland was borrowed on the markets at 2.9% and lent on to us at a rate in excess of 5.6%. That is a high mark up and it is unprecedented in the provision by the EU of assistance to member states. I do not know why this approach was adopted but the Government should attempt to renegotiate the rates.

When I raised this in the House by way of priority question last Wednesday, the Minister was totally dismissive of my remarks, he was scornful in his approach and he questioned whether I realised this would require the assent of the 27 member states. He seemed to be surprised when I told him all major decisions taken by the EU are made with the consent of 27 member states. However, last Monday, when he was interviewed from Brussels on "Six One", he talked up the possibility of a renegotiation downwards of the interest rates. There is no doubt the Minister has learned an awful lot in a week and he is continuing to learn as the week goes on. Is he serious about doing the best deal possible? What level of briefing is he getting? Opposition Members using their own sources know what is occurring in terms of negotiation in Europe while the Minister is totally unaware of the policy developments in Brussels to the extent that he is no longer protecting the national interest.

The European Commission can currently borrow from capital markets to provide financial assistance to EU member states under two different programmes - the balance of payments assistance programme and the EFSM - designed to provide support to member states experiencing external payments difficulties. The medium-term financial assistance programme is available only to member states that have not yet adopted the euro. The loans under this programme should be financed exclusively from funds raised on capital markets. The maximum outstanding amount of loans under this programme was doubled to €50 billion on 18 May 2009 following a bond issuance of €4 billion for Hungary in December 2008 and March 2009 and €1 billion to Latvia in February 2009. The Commission has provided credit lines amounting to €14.6 billion under this programme to three countries - Hungary, Latvia and Romania. Hungary only used €5.5 billion in three tranches of the €6.5 billion credit line available before its facility expired. The credit lines for Latvia and Romania will expire in January 2012 and March 2012, respectively. Of a total of €8.1 billion credit available to both countries, a sum of €5.2 billion has been used so far. Romania is set to receive another €1.5 billion this year and that will leave a spare capacity of only €37 billion under the programme.

The reason I am going into the figures is to show that the amounts involved in this fund are substantial. A total of €50 billion is available but the coupon rates for money provided for terms of between three to nine years is between 3.1% and 3.8%. The fund that was in existence before the mechanism for the bailout package was put in place following the Greek difficulties provided money to non-eurozone countries at an interest rate of between 3.1% and 3.8%, depending on the duration of the loan, yet when a eurozone country such as Ireland had difficulties, it was penalised and it has to pay an interest rate of 5.8%, 300 basis points above the rate at which the fund can borrow.

The EFSM is part of the €750 billion joint financial safety net established on 9 May 2010 by the EU, European Commission and IMF to provide financial assistance to eurozone members in economic difficulty. Under the programme, the Commission can raise funds from capital markets of up to €60 billion by using the EU budget as collateral. In addition, €440 billion can be raised from capital markets through the newly established special investment vehicle of the EFSF. The IMF is committed to another €250 billion to make up the total fund. The Commission issued a €5 billion bond for the first time on 5 January 2011 under the EFSM to finance the first tranche of funds for Ireland. A further €5 billion is to be issued in the next few days and this will go towards the same fund. If the interest rate was calculated on the same basis as that on the funds provided to Hungary, Latvia and Romania, it would be 2.55%, but the rate charged to Ireland is 5.65%, even though the headline rate is 5.8%. Why was Ireland charged an additional 310 basis points in interest? It is a function of inept negotiation by the Minister and his Cabinet colleagues.

The arrangements were in place for the Greeks but they were not drawing from the fund. The stabilisation fund was put in place in the event of other peripheral states having difficulties. Ireland was the first test case and a penal rate has been applied. The Minister's position last Wednesday was, "take it or leave it". By Monday of this week, he had changed his tune and now he believes renegotiation is a possibility. I am trying to encourage him to fight the case because if we were treated in the same way using the fund that was in place to assist non-eurozone countries such as Latvia, Hungary and Romania to help them with their balance of payments problems, the EFSF moneys would be available to us at an interest rate of 2.55% and not 5.65% with a headline rate of 5.8%. There is a case to be made and the information is available.

Our European colleagues intend bringing forward proposals in March and I hope the Minister gets himself briefed properly before he negotiates there. The March deadline may not be met and it may go on until June when I hope a new Government is in place and some progress can be made. I do not say the horse is well and truly out of the stable and galloping across the European frontier and any negotiation will bring the interest rate down to 2.55% but a substantial reduction from what is being charged is desirable because, at present rates, the funding is not affordable and there is a grave possibility of us not being able to pay our way and hitting another crisis in two years time.

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