A well-placed Brussels diplomat has told RTÉ News it is unlikely that the interest rates being paid by Ireland for the €85bn rescue fund can be lowered.
The comments come amid speculation that the interest rates which apply to the EU/IMF rescue mechanism may be discussed at a meeting of eurozone finance ministers on Monday.
While there is a possibility that the interest rates will be discussed on Monday, the diplomat played down suggestions that they could be lowered.
The Irish bailout is sourced from three separate funds amounting to €22.5bn each: the European Financial Stability Mechanism (EFSM), the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF).
Lowering the interest rate would have negative implications for the cash reserves of the EFSF component of the bailout, would blunt the emphasis on the facility being an absolute ‘last resort’, and would increase moral hazard, the source said.
The EFSF is the Luxembourg-based facility through which cash is raised on the international markets based on guarantees provided by all 27 EU member states.
The overall costs, or interest rate, that Ireland has to pay for the EFSF component of the loan are around 6%.
There was criticism by Opposition parties in December of the interest rate charged for the EFSM component of the Irish bailout.
The EFSM is effectively EU money. The European Commission can raise up to €60bn on the international markets to lend on to Ireland. But the Commission charges Ireland a margin of 2.925% above the rate at which Brussels borrows the money.
The margin was a political decision taken by EU finance ministers (including Brian Lenihan) when the overall €750bn rescue fund was agreed following the Greek debt crisis last May.
It was designed, again, to dissuade member states from looking to the fund for help at rates lower than those applied in the open market.
However, the margin raised eyebrows when it emerged that it was the first time the European Union ever charged a profit margin for money that it was lending or guaranteeing.
If Ireland drew down all of the €22.5bn under the EFSM component, the margin could cost Ireland nearly €5bn over a seven-year period.
That money would go back to the EU budget as surplus. Therefore, it would revert proportionately to EU member states on the basis of their contribution to the EU budget.
