The European Union has approved an €85 billion rescue package for Ireland which, if drawn down in its entirety today, would attract an average interest rate of 5.83 per cent.
Of this €10 billion will be used to immediately to recapitalise the banks to bring them up to a core tier 1 capital ratio of 12 per cent, with a €25 billion contingency.
The remaining €50 billion will be used to meet the budgetary requirements of the State.
Ireland has also secured an extra year – until 2015 – to meet its target of reducing its budgetary deficit to 3 per cent as part of the agreement.
Under the terms of the deal the State will contribute €17.5 billion of the required funding, €12.5 billion of which will come from the National Pension Reserve Fund and €5 billion from “other domestic cash resources”.
The European Financial Stability Mechanism will contribute €22.5 billion, the IMF €22.5 billion and the €22.5 billion from the European Financial Stability Fund.
The Joint EU/IMF Programme for Ireland, released by the Government this evening, says the interest rate payable on the loans “will vary” according to timing and market conditions.
The programme has two parts; the first involves restructuring of the Irish banking system and the second the introduction of a series of fiscal and structural reforms.
The document says the Irish banking system will become smaller and more appropriate to a country of Ireland’s size during the restructuring.
The Minister for Finance said the loan terms were the same as those given to Greece, with the only difference
that Ireland was borrowing over a longer term.
Central Bank Governor Patrick Honohan said the deal "provides the necessary assurance to achieve a convincing and rapid reconfiguration and downsizing of the banks, putting the Irish banking system on a convincingly secure footing".
At a press conference in Dublin this evening Taoiseach Brian Cowen said there would be no change to the country’s 12.5 per cent corporation tax rate.
He said the “final agreed programme represents the best available deal for Ireland”.
“It allows us to move forward with secure funding for our essential public services, for our welfare state, for the most vulnerable members of society that depend on them.
“And it provides Ireland with vital time and space to successfully and conclusively address the unprecedented problems we have been dealing with since this global economic crisis began.”
He said the EU/IMF loans were necessary to allow the Government meet its obligations and were a cheaper source of funds than borrowing available from the market.
“Without this external support, the State would not be able to raise the funds required to pay for key public services for our citizens and to provide a functioning banking system to support economic activity,” he said.
He also said there was no “political support” in Europe for a move that would have sought to force senior bondholders to take a writedown on their debt.
Mr Cowen said the agreement with the EU/IMF had endorsed the Government’s target of reducing the country’s budget deficit by €15 billion over the next four years.
Fine Gael finance spokesman Michael Noonan described the deal as a "hugely disappointing result for the country” and said it was hard to imagine how it could have been worse.
“The Government was cleaned out in the negotiations and has not acted in the best interests of Ireland. At the very least we could have expected a low rate of interest on the loans, EU agreement on a jobs and growth package, and agreement to share the cost of rescuing the banks with the bond holders. The Government came away with none of these,” said Mr Noonan.
EU monetary affairs commissioner Olli Rehn said the deal had been agreed following very intensive discussions with Irish officials.
The programme says the funding will be provided in quarterly tranches on the achievement of agreed targets.
It also says Ireland will discontinue its financial assistance to the loan facility for Greece, a contribution which would have reached €1 billion by mid-2013.
IMF chief Dominique Struass-Kahn confirmed the fund will contribute €22.5 billion to Ireland's rescue package, and said it is likely to be approved by the IMF board in December.
"The strategy for the financial system rests on twin pillars: deleveraging and reorganization; and ample capitalization," Mr Strauss-Kahn said in a statement.
Under pressure to take action to arrest a systemic threat to the euro before markets open in Asia tomorrow, the 27 EU finance ministers have also approved the broad outlines of a permanent crisis-resolution mechanism to come into effect in 2013, based on a joint proposal by Germany and France.
Private bondholders could be made to share the burden of any future sovereign debt restructuring of a euro zone country, subject to a case-by-case evaluation without any automaticity, EU monetary affairs commissioner Olli Rehn said.
The heads of the European Commission, the European Central Bank, the council of EU leaders and euro zone finance ministers endorsed the Franco-German plan in a conference call.
International Monetary Fund procedures would apply, he said. The IMF's "lending into arrears" policy stipulates that the Fund will lend to a country that is making good-faith efforts to come to an agreement with bondholders.
The IMF favours so-called Collective Action Clauses in sovereign bonds, enabling a majority of bondholders to impose restructuring on others. Rehn said CACs would apply on euro area sovereign bonds from 2013.
Additional reporting: Reuters/Bloomberg/PA
