Michael Noonan (Limerick City, Fine Gael)

There is now a general appreciation of the importance of debt sustainability considerations in the pricing of EU and euro area financial assistance loans to member states.

In this regard, the Heads of State and Government of the euro area decided on 11 March that the pricing of the EFSF - loans - should be lowered to better take into account debt sustainability of the recipient countries, while remaining above the funding costs of the facility, with an adequate mark up for risk, and in line with IMF pricing principles.

The Council also decided that the interest rate on the loans to Greece will be adjusted by 100 basis points. The position in regard to the pricing of Ireland's loans was also considered in the context of wider political discussions and the Council did not take any decision in the matter. Following the meeting of euro area Heads of State and Government on 11 March, finance Ministers are now considering arrangements for the implementation of the changes announced on pricing. The meeting of eurogroup finance Ministers on Monday agreed the term sheet for the European Stability Mechanism, ESM, which will replace both the EFSM and the EFSF from June 2013. This term sheet includes a pricing formula, similar to the IMF approach for ESM loans. The pricing formula provides for a lower margin than currently applies for either the EFSF or the EFSM.

It is not possible at this stage to provide definitive estimates on the level of savings which would arise if reductions were agreed in the pricing of the EU loans to Ireland. However, I understand from preliminary analysis undertaken by the NTMA that a 1% target reduction in the interest rate could yield overall savings of the order of €725 million over the life of the €12.6 billion EFSM and EFSF loans which have been committed to so far. The estimated equivalent annual savings would be of the order of €130 million.

That is the saving on the amount drawn down so far but the fund reaches to €85 billion so we are talking about savings on the draw-down of €12.6 billion.

I emphasise that these are estimates based on the amounts committed to or drawn down to date. The actual savings that would arise from any interest rate reduction secured would depend on the total amount of funds drawn down and on the maturity profile of any such loan. We have yet to decide how much we will draw down and the schedule for any such draw-downs.

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