Ireland responsible for its problems - Barroso

Wednesday 19 January 2011 22.27
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José Manuel Barroso - Angry comments about Ireland
José Manuel Barroso - Angry comments about Ireland
European Commission - May be 'sympathetic' to Ireland's cause
European Commission - May be 'sympathetic' to Ireland's cause

A visibly angry European Commission President has rejected suggestions that terms of Ireland's EU bailout would make vassals of Irish taxpayers, insisting that Ireland was responsible for its own problems.

Socialist MEP Joe Higgins had described the EU's Permanent Stability Mechanism as nothing more than a mechanism to cushion European banks from the consequences of reckless speculation in the Irish market.

He told Commission President José Manuel Barroso that Europe was being led around by the nose by the financial markets.

However, the Commission President said Ireland's problems were created by some Irish financial institutions and by a lack of supervision in the Irish market.

Mr Barroso said that Europe is now part of the solution, but it was not Europe which had created the situation.

He told the European Parliament that those who had made comments 'against solidarity' were trying to deepen the cleavages between rich and poor.

Commission 'supports' lowering bailout rates

Earlier, well-placed EU sources told RTÉ that there is 'support' within the European Commission for a possible lowering of the interest rates Ireland will pay for the €85bn EU/IMF bailout.

'The timing is right,' said one source. 'The Commission could be sympathetic.'

Ireland will pay on average 5.8% for the loan, which is much cheaper than what it would pay on the international market.

However, it is still a relatively high amount, according to economic observers.

The pricing structure of the loans was agreed unanimously by EU finance ministers in May when they put together the overall €750bn EU rescue fund in the wake of the Greek debt crisis.

At the time, member states such as Germany, the Netherlands, Austria, Finland and Slovakia were determined to ensure that the interest rates connected to the fund were 'dissuasive' in order to prevent countries seeing the bailout as an easy option.

However, the EU source pointed out that Germany had not immediately dismissed talk of reducing the interest rates.

The source compared it to Germany's swift rejection of the euro bonds idea when it was proposed by the Luxembourg Prime Minister - and the Chair of the Eurogroup - Jean-Claude Juncker.

It is understood the European Commission has sympathy for Ireland's position because of the need to balance the dissuasive element of the interest rates with the need to ensure they do not further cripple the economy of recipient countries.

'The rates should be dissuasive, but at the same time not too much of a burden,' the source told RTÉ News.

While Minister for Finance Brian Lenihan placed the issue on the agenda of Monday's meeting of eurozone finance ministers, the idea of lowering the rates has been in and out of discussion since the €110bn Greek bailout last April.

However, the significance now is that the issue is on the table and is being discussed.

The significance of the timing is that the EU is currently working on a potential plan to increase the capacity and scope of the European Financial Stability Facility, which is currently worth €440bn.

There are moves to increase the capacity of the fund and to make it more flexible, and in that context the question of the interest rates charged will form part of the discussions.

As to the timetable, the European Commission would like the re-adjustment of the EFSF to be completed by the time EU leaders meet for a special summit on 4 February, but according to a number of member states, it is more likely to be the formal spring summit on 24-25 March.

If there is to be agreement on lowering the interest rates, it is more likely to be done by the March summit.

Any decision on the rates would have to be taken unanimously by eurozone member states, and it would apply to any country availing of an EU rescue.

However, the European Commission's support may well have an influence.

It is understood a number of other countries are interested in the question of interest rates, including Greece, Spain and Portugal, although for obvious reasons Portugal cannot be seen to publicly support the idea, due to persistent rumours and market expectations that it will be next to seek a bailout.

However, there may still be strong opposition to reducing the rates.

The EFSF itself borrows money on the international markets using its AAA rating on behalf of member states, who act as guarantor.

In order to maintain the rating, the EFSF needs to keep significant capital reserves, and reducing the rates could undermine those reserves, and thus its AAA rating.