LENIHAN REACTION:MINISTER FOR Finance Brian Lenihan said as much as €10 billion from the National Pension Reserve Fund may be deployed in Ireland's €17.5 billion contribution to the EU-IMF aid programme.
“I would say about €9-€10 billion will be out of the pension reserve fund and about €7.5 billion from cash balances,” he said as he emerged last night from an emergency meeting of EU finance ministers.
The Minister also said the Deauville declaration by German chancellor Angela Merkel and French president Nicolas Sarkozy on private sector participation in future bailouts, was “one of the crucial steps, if you like, in the Irish mounting of the ladder in the secondary markets”.
Responding to reporters’ questions, he indicated that the one-year extension to 2015 in the deadline for the achievement of a 3 per cent budget deficit, arose from doubts in the EU executive over Ireland’s growth projection.
The extension was proposed by the European Commission and endorsed by finance ministers, he said. There was no change, however, to the €6 billion adjustment target for the 2011 budget and the €15 billion target in the four-year plan.
“However, there is a degree of divergence among economists about the medium-term forecast. Some naturally are more optimistic than others.
“There isn’t a wide divergence, but a difference of a few percentage points can make a huge difference to the overall calculation. So because of that, the commission recommended it was accepted at the euro group today that Ireland should be given one additional year to complete the adjustment to reach the 3 per cent target.”
Asked why senior bank bondholders should not participate in the rescue effort, the Minister said it was the clear view of the EU authorities that that would be very unwise.
“First of all, junior bondholders will participate. That was made clear today, that’s the policy of the Government and they will be expected to bear steep losses and make a contribution towards this,” he said.
“As far as senior bondholders are concerned, I’ve always made it clear that as long as we were in the markets, that senior debt was fundamental for Ireland.
“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.”
Mr Lenihan said the average annual interest rate on the external loans of 5.8 per cent was “affordable” for the State. Ireland’s rescue programme will continue for seven years and the interest rate is effectively “the same” as the annual rate prevailing in the EU-IMF rescue of Greece, which averaged 5.2 per cent over three years when first agreed last May. The decision by EU ministers to endorse Ireland’s rescue was accompanied by their agreement to align the maturity of Ireland’s emergency financing with those of Greece.
