EU to insist on punitive interest rate

The European Union has demanded “continuity” in government economic and fiscal policy following the 26-County general election on February 25th.

Speaking on Monday night, European commissioner for economic and monetary affair Olli Rehn ruled out any review of the planned bailout loan package with the Dublin government for several years.

Under a ‘memorandum of understanding’ signed by the outgoing coalition government late last year with Rehn and other EU officials, the EU agreed, in tandem with the IMF, to provide loans to the Dublin government under strict austerity conditions and at a damagingly high interest rate.

Minister for Finance Brian Lenihan said today there was “significant disagreement” between member states on lowering the interest charge on bailout loans.

Lenihan said Germany wanted the 26-County state to increase its austerity measures in return for a lower interest rate, without further explanation. He said that the State’s low corporate tax rate was a key priority for him in the negotiations.

With less than ten days to go in office, Lenihan also revealed there was “considerable shock” in Europe at the debate on bond default in the election campaign. He said the debate was seen as something which was “deeply damaging” for European banks.

“The main focus of German concern has been the fiscal correction in Ireland. They want the fiscal correction expedited and this is the crucial issue in relation to the pricing policy, that if you want a better pricing policy you’d perform in terms of the EU/IMF agreement.”

With the issue remaining central to the election campaign, Fine Gael’s finance spokesman Michael Noonan said unless the average 5.8 percent interest rate was reduced, then the bailout could tip Ireland’s banks over the edge.

“Unless the bailout package is made more affordable there is a high risk that without anyone taking a policy decision that banks could run the risk of defaulting in Ireland,” he said.

Sinn Féin’s Finance spokesman Pearse Doherty warned that further money from the taxpayer should not be used to shore up deeply indebted banks because the country is in danger of defaulting on its national, sovereign debt.

“We need to wake up here, we need to recognise that Ireland is in danger of defaulting on its sovereign debt and it’s not just me saying that, there are Nobel prize winning-economists saying that,” Mr Doherty told state-run radio.

He said the massive private bank debt “lumped onto” the sovereign debt needs to be separated out and should Sinn Fein enter government after the election it would tell the European Union that Ireland needs to reduce its deficit.

He said Sinn Féin would not put any more taxpayer money into banks until there was a new nationalised state bank from the merger of Allied Irish Bank and Bank of Ireland that got rid of the bad debts and was in a position to lend.

Speaking on the same programme, Mr Lenihan called Sinn Féin’s policy on the banks “totally irresponsible” and “grounded on populism”. He said if Mr Doherty had made his proposals at last night’s meeting of EU finance ministers he would have been “laughed out of the room”.

However, Mr Doherty described Lenihan’s claims that the State would run out of money if the country did not pursue the EU/IMF deal as “absolute nonsense”.

“Brian Lenihan can come out with as much spin and waffle as he wants -- he’s trying to scaremonger people that pensions won’t be there,” he said.

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