The €85 billion EU-IMF bailout package for Ireland announced last night was roundly condemned by the Opposition parties who are now all likely to vote against the budget on December 7th.
Fine Gael, Labour and Sinn Féin attacked the intention to use the National Pension Reserve Fund to help provide a further €10 billion in further capital for the banks. In total, the banks could end up getting another €35 billion if their losses are bigger than expected.
The remaining €50 billion is to cover the State’s borrowing needs for the next three years. Opposition parties were highly critical of the 5.8 per cent average interest rate that will be charged by the EU and the International Monetary Fund.
Speaking on RTÉ's Morning Ireland programme, Fine Gael enterprise spokesman Richard Burton said it was questionable whether the deal would allow Ireland to break out of the vicious debt cycle it is in.
“The features that raise real concern is that the banks could receive an extra €35 billion, and all of that is going on taxpayers' shoulders. The second element that will make it harder to break out of the debt cycle is the rising cost of credit, not just for the government but for householders and business as the ECB ramps up the cost of support it is giving," he said.
Mr Bruton criticised the lack of any investment strategy and the 5.8 per cent interest rate.
"The EU in particular is looking at Ireland like a prodigal son who must be got into line. It is displaying very narrow thinking in shielding bond holders from exposure to costs and taking a penal approach to the cost of money. If Europe sets a cliff too steep for Ireland to scale it won’t solve its own problems, no more than Ireland’s," he added.
Speaking on the same programme, Minister for Tourism Mary Hanafin said the Government was borrowing the money at a cheaper rate than was available anywhere else.
"A four-year plan has been designed and accepted. It deals with competitiveness and investment. We were in a worse situation in the 1980s. We lifted ourselves out of it then and I am confident the Irish people will do it again," she said.
Later, Ms Hanafin condemned claims by Labour’s finance spokeswoman Joan Burton that the country was “banjaxed and hobbled” as irresponsible. Speaking at Tourism Ireland event in Dublin, Ms Hanafin said such comments did “serious international damage” to Ireland at a time when the tourism industry was reeling from a fall-off in overseas visitors.
Minister for Transport Noel Dempsey said the option of default on senior bondholders was put forward by the Irish negotiating team but the European partners would not contemplate it. He said it was his understanding that “there would be no deal if we went down the route”.
Mr Dempsey also said the international markets are putting pressure on Europe and “unfortunately we are part of the fall out for that”.
A memorandum of understanding to give legal status to the agreement is near completion and will be published before the budget. It will give quarter-by-quarter targets which will have to be met by the Government in order for funds to be released.
Under the agreement the State will contribute €17.5 billion of the package from the National Pension Reserve Fund and cash held by the National Treasury Management Agency while the total external assistance in the fund will come to €67.5 billion. It is comprised of €45 billion from the EU, bilateral loans from Britain, Sweden and Denmark, and €22.5 billion from the IMF.
Britain will lend nearly €8 billion, including €4 billion in a direct bilateral loan. The British have won a major concession from EU partners, particularly the Germans, by ensuring the UK will not be automatically part of any euro-rescue packages after 2013.
Taoiseach Brian Cowen welcomed the fact that there would be no change to the corporation tax rate of 12.5 per cent which was vital to Ireland’s economic recovery.
Speaking at a press conference last night, he said a large portion of the loans, some €50 billion, would go towards paying for social welfare payments, pensions, health and education “as we manage the transition to a sustainable deficit and debt position”.
He said the programme endorsed the proposed adjustment of €6 billion next year and €15 billion over the next four years, while recognising the timeframe for reducing the deficit to 3 per cent of GDP should be extended to 2015.
Minister for Finance Brian Lenihan said junior bank bondholders would face steep losses but made it clear that senior bondholders would not be hit. “In the course of these negotiations I did raise the issue of senior debt and the unanimous view of the European Central Bank and the commission was no programme would be possible if it were intended by us to dishonour senior debt because such a dishonouring of senior debt would have huge ripple effects throughout the euro system,” the Minister told reporters last night.
Mr Lenihan said joint efforts by German chancellor Angela Merkel and French president Nicolas Sarkozy to compel private investors to assume sovereign bailout costs had weakened Ireland’s position.
“Remember, one of the crucial steps if you like in the Irish mounting of the ladder in the secondary markets was the Deauville declaration (last month) and the subsequent discussion about it,” he said.
The latest banking bailout – the fourth in two years – will push AIB into almost full State ownership as it has to raise €9.8 billion, including a further €5.3 billion announced last night, to cover spiralling bad loans.
Bank of Ireland is being given another opportunity to avoid Government control by trying to raise another €2.2 billion from private investors before the end of February.
Nama will grow larger, taking a further €16 billion in loans and clearing out all property developer loans from AIB and Bank of Ireland.