Extra year for Ireland under €85 billion plan

Sunday 28 November 2010 20.54
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EU/IMF deal - €35 billion set aside for banking system
EU/IMF deal - €35 billion set aside for banking system
Brian Cowen - Average interest rate could be 5.8%
Brian Cowen - Average interest rate could be 5.8%

EU finance ministers have agreed a three-year €85 billion financial package for Ireland.

It has also been agreed that Ireland will be given an extra year – until 2015 – to bring its deficit in line with the EU target of 3% of economic output.

The package includes €10 billion for immediate recapitalisation of the banking system and another €25 billion for banking contingencies. €50 billion is for budgetary financing needs.

Read the Government statement here

Half of the €35 billion earmarked for the banks will come from Exchequer funds and the National Pensions Reserve Fund. The UK, Sweden and Denmark are contributing to the overall package.

A Government statement said that, if drawn down in total, the combined interest rate on the money would be around 5.8%, but this would depend on the timing and extent of any drawdowns.

The Taoiseach said there would be no change to Ireland's 12.5% corporation tax rate. He said €5 billion of the funds for banking recapitalisation would come from the State's own cash resources, with €12.5 billion from the National Pensions Reserve Fund.

Big increase in national debt - Cowen

Responding to a question on banks' senior bondholders being forced to take some of the hit, the Taoiseach said there was no agreement from the EU for such a proposal. EU Commissioner Olli Rehn also said restructuring of the senior debt of bondholders would not be involved in the Irish programme.

There will also be quarterly progress reports on how the programme is being implemented. Though the programme is for three years, the average length of the loans is up to seven and a half years.

The Taoiseach said the Government estimated that the debt ratio will stabilise in 2013 and that interest payments would represent over 20% of tax revenue in 2014. The Taoiseach said this represented a very large increase in our national debt over the course of this unprecedented economic crisis and this must be addressed over time. But Mr Cowen said the Government believed it was sustainable if we fully implemented the national recovery plan.

Eurogroup chair Jean-Claude Juncker said rhe funds were being provided on the basis of a programme negotiated with the Irish Government. This includes three elements: strengthening and restructuring of the banking system; budgetary measures to bring Ireland's deficit to the EU target of 3% of GDP; and reforms, particularly in the labour market.