AN OIREACHTAS committee has been told Ireland should seek to renegotiate the interest rate it is paying on its emergency funding from Europe.
Economics professor Karl Whelan told the Oireachtas Committee on European Affairs that the conditions associated with the loans might be changed as Ireland was the only country using the funds. “We are the guinea pig.”
This contrasted with the loans from the International Monetary Fund (IMF), which involved terms that were identical across all countries.
He said it was the view in some quarters in Europe that there should be negotiations on the rates. Europe did not want to make it easy to access the emergency funds but it also did not want Ireland to default.
Ireland has negotiated external funding of €67.5 billion, of which €22.5 billion is coming from the IMF, €22.5 billion is coming from the EU’s European Financial Stability Mechanism, and €17.7 billion is coming from the European Financial Stability Facility.
Bilateral loans from the UK, Sweden and Denmark would contribute the final €4.8 billion.
Prof Whelan said it was his view that the interest rate charged on the European money would be a bit higher than an earlier estimate from the National Treasury Management Agency (NTMA).
The IMF rate would be lower for the first three years but would then rise. Also the loans were variable and interest rates were likely to rise. He said if the NTMA sought to hedge against the IMF loans it would be charged a rate of 5.7 per cent.
It was his estimate that the European mechanism loans would cost approximately 6.1 per cent and the European facility loans about 6.45 per cent.
Over an extended period the cost of the EU and IMF loans would be broadly similar. The IMF loans are designed to get more expensive as time passes.
Prof Whelan said the margin being put on the European loans had already come down relative to what had been envisaged last summer.
He pointed out that if a country was paying 6 per cent on its debt and had no deficit, it would have to grow by a nominal 6 per cent per year to achieve debt stabilisation.
When it was put to him that Ireland’s debt situation was worse in the late 1980s, he said the type of economic growth that helped Ireland then was unlikely to re-emerge. “We got out of jail in the late 1980s with an outcome that is not likely to be repeated.”
Brendan Howlin of Labour said the conditions attached to the European loans were more akin to the punishing attitude taken to the Germans after the first World War than to the more generous attitude that led to the foundation of the EU after the second World War.
Senator Pascal Donohue of Fine Gael said he believed the terms were “flawed” but he did not believe they where animated by the outlook of the Treaty of Versailles.
Prof Whelan told Michael Mulcahy of Fianna Fáil that the NTMA estimate on the interest rates was correct at the time it was made.
