Bernard Durkan (Kildare North, Fine Gael)
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To ask the Minister for Finance the extent to which this country has benefitted from interest rate or other reductions affecting debt and repayment levels arising from the banking collapse and downturn in the economy in respect of interest, conditions and terms regarding repayments in the short, medium and long term; the total benefits achieved on behalf of the Irish taxpayers in relation to modification and improvement of the arrangements entered into arising from EU and IMF rescue bailout, banking and other debt provision; if he can yet identify how further savings on behalf of the Exchequer and taxpayers here can be achieved in the future; and if he will make a statement on the matter. [42282/12]

Bernard Durkan (Kildare North, Fine Gael)
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To ask the Minister for Finance the progress made to date in achieving improvements by way of terms and or interest rates in respect of this country’s borrowings arising from the EU debt rescue provisions entered into by his predecessors; the actual monetary value of such improvements to date; and if he will make a statement on the matter. [42526/12]

Michael Noonan (Limerick City, Fine Gael)
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I propose to take Questions Nos. 47 and 88 together.

When the Programme of Financial Support was initially agreed in late 2010, the average interest rate on the €67.5 billion available to drawdown from the external sources was estimated by the EU Commission to be 5.82% on the basis of market rates at the time of the agreement. The average life of the borrowings, which involve a combination of longer and shorter dated maturities, was initially set at 7.5 years. The Euro Area Heads of State or Government (HOSG) agreed on 21 July 2011 to reduce the cost of the European Financial Stability Facility (EFSF), which will disburse €17.7 billion, to interest rates equivalent to those of the EU Balance of Payments facility i.e. close to, without going below, the EFSF’s cost of funding.

The amendments to the EFSF framework have removed the interest rate margin on EFSF funds and these were incorporated into a new legal agreement on the 27th October 2011 in which the interest rate margin, which was 2.47%, is now defined as zero. The agreement incorporates a guarantee commitment fee of 0.1% per annum and a service fee to cover the cost of operations of the EFSF. It also provides that EFSF lending done after that point will be done on a floating rate basis. It is estimated that the overall reduction in the interest rate margin which Ireland pays to the EFSF is estimated to be in the region of 2.7 to 2.8 percentage points which includes the margin and other structural changes. The original weighted average maturity of Ireland’s EFSF loans has been increased to 15 years.

In October 2011, the EU Council of Ministers approved an EU Commission proposal to eliminate the margin of 2.925% on the EFSM facility which, when fully drawn, will amount to €22.5 billion. This applied to EFSM disbursements back to the date upon which they were issued. The actual cost of funding depends on the prevailing market rates at the time of each drawdown. The original weighted average maturity of EFSM was extended from 7.5 years to 12.5 years. Lengthening of maturities provides benefits in terms of phasing of loans and ensuring that the profile of redemptions is more orderly – avoiding as far as possible exceptionally large amounts in particular years. By contrast, money borrowed at longer maturities is generally more expensive. However, on balance, savings arising from maturity extension are significant though complex to calculate. Given these changes, the total savings on the original EU facilities with an average life of 7.5 years is some €9 billion, or approximately 5.7% of 2011 GDP. This reduces the annual repayment on these loans by an average of €1.2 billion per year over 7.5 years.

In addition, the cost of Ireland’s IMF loans is falling as a result of an increase in our IMF quota effective from March 2011 and a further quota increase when the quota changes agreed in 2010 come into effect. This further quota increase is expected to become effective in the near future and to result in an overall improvement of the order of 100 basis points on the interest rate on our IMF loans. The overall benefit of these interest rate reductions is estimated to be some €1.9 billion. These expected savings may change either upwards or downwards in the light of future quota revisions.

The United Kingdom bilateral loan of GBP3.3 billion has been re-negotiated to remove the interest rate margin of GBP 2.29% although the base interest rate has been changed from a GBP interest rate swap level to the UK Debt Management Office cost of funds plus a service fee of 0.18%. The bilateral loans with Sweden and Denmark, which will amount to total disbursements of €1 billion by the end of the programme, were negotiated after the interest rate margin reductions on both the EFSF and EFSM facilities and their interest rate is floating three month EURIBOR plus a margin 1.00%. For 2012, the interest rate margin reductions in the EU and bilateral loans amount to some €929 million. When the impact of the IMF changes are taken into account, the savings amount to some €960 million on a General Government basis or a reduction of our interest repayment in 2012 of 0.60% of the current 2012 GDP estimate.

As noted above, our EU programme funding is being provided at, or close to, the cost of funds for the lenders. The scope for on our programme interest payments is therefore limited.

However, we are also seeking ways to alleviate the cost burden of assisting the banking sector. Arising out of the 29th June 2012 statement by the Euro Area Heads of State or Government that “... it is imperative to break the vicious circle between banks and sovereigns” work is continuing at a technical level to put in place both the single supervisory mechanism, and the European Stability Mechanism’s direct banking recapitalisation facility, at the earliest possible date.