Pearse Doherty (Donegal South West, Sinn Fein)
Link to this: Individually | In context

Question 143: To ask the Minister for Finance the savings to the State arising from a 1% reduction, a 2% reduction and a 3% reduction in the interest rate on the EU portion of the EU and IMF support programme loan broken down by year and with a total for the lifetime of the loan on the assumption of a seven and a half year loan period as outlined in the Memorandum of Understanding; and if he will make a statement on the matter. [18411/11]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context

The assessment of the impact of changes in the interest margin on our EU loans is based on a number of assumptions about the level of the reduction, the date on which it applies and the amount of the loan to which it applies. Each of these elements has been changing in the past number of months. Because of this, the figures provided for any interest rate reduction are qualified as being illustrative and the precise position will not be known until the actual arrangement is finally agreed. Also, a decision to grant a reduction in the interest margin is a political one at EU level and is decided on a case by case basis. No change has yet been agreed for Ireland. In mid–May, the Eurogroup decided on the margins for the EU financial assistance to Portugal which – if applied to Ireland's EU funding - would amount to a reduction of about 0.6%. This crystallised the level of reduction likely to be available to Ireland. My understanding at that time also was that the benefit of any reduction would not apply retrospectively. More recently, I have received clarification that, if we were to get the benefit of the arrangements that apply to Greece, retrospection would not apply to any interest payments made before the decision.

There is, therefore, a range of options in terms of the value of a reduction and this depends on the terms granted, which are decided on a case by case basis. The following estimates of the likely impact illustrate the extent of this range. If the same interest rate reduction as Portugal's is applied (i.e. the equivalent to about 0.6% off Ireland's margin) to the coupons on future disbursements from the EU funds only (i.e. all the funds available to us under the EFSF and the EFSM) then the savings would be approximately €150 million per annum. Similarly, if the same interest rate reduction as Portugal's (i.e. the equivalent to about 0.6% off Ireland's margin) was applied to all future coupons on those EU funds (EFSF and EFSM) then the saving could be up to €240 million per annum. The upper end of this range of options referred to earlier would be a 1% reduction applied to all future coupons for both the EU funds and the bilateral loans from EU partners, which would provide savings of the order of €450 million per year, assuming all the funds are drawn down and that Ireland would pay a lower interest rate than that applied for Portugal recently. Although no decision has yet been made on an interest rate reduction for Ireland, based on the latest information available as set out above, any benefit is unlikely to be at the higher end of the range outlined above.

In that context, for illustrative purposes, applying the saving for the middle range outlined above outlined above for the 7.5 year average maturity envisaged for the overall programme funding, would give cumulative savings of approximately €1.8 billion. The prospective savings from any putative 2% or 3% reduction would be pro rata to the amounts outlined above. It must be noted, however, that a reduction of 3% would result in an interest rate below the cost of funds to the EFSF and the EFSM.

The value of any interest rate reduction granted to Ireland will be known if and when a decision is taken on granting such a reduction, and on the terms and conditions on which it is to be granted. We will continue to press our case for such reduction. We will also continue to press the case for a larger reduction in the interest rate for all programme countries.