Tuesday

31st May 2016

Ireland and Portugal get lower interest rates on bailouts

  • Irish PM Kenny says taxpayers will have to pay less (Photo: Council of European Union)

Ireland and Portugal on Thursday (21 July) were given longer deadlines and lower interest rates to pay back their loans under their respective EU-IMF bailouts, but eurozone leaders made it clear that no private investors will be involved in their rescue, as it is the case with Greece.

Similarly to Greece, both Ireland and Portugal will be given 15 to 30 years to repay their loans, as opposed to the current 7.5 year-deadline and their interest rate will be lowered to around 3.5 percent.

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Leaders however drew a clear distinction between the one-off private sector involvement in the Greek case and the other eurozone countries under an EU-IMF bailout, an attempt to stem the downgrading spiral by ratings agencies that both Ireland and Portugal have been drawn into.

Saluting the "robust" response of the eurozone leaders, Portuguese Prime Minister Pedro Passos Coelho said that the new deal will allow Portugal and Ireland to see "increased the conditions for success" and calm markets.

The recent downgrade to 'junk' status by Moody's ratings agency - both for Portugal and Ireland - was made because the agency feared the private sector would be involved in other bailouts as well.

"It was very important that the eurozone countries agreed that the Greek situation is unique and has no parallel in any other European country, like Portugal and Ireland," Coelho pointed out.

Meanwhile, Irish Prime minister Enda Kenny welcomed having obtained the same loan conditions as his Greek and Portuguese colleagues.

"The conclusions of today's meeting of leaders mark a significant improvement in the programme of support and ultimately it reduces the cost of our debt, thereby lightening the burden on the taxpayer," Kenny told reporters at the end of the meeting.

He estimated that the lowering of the interest rate by two percent "should be worth the order of between €600 to €800 million a year."

Despite reassurances by Kenny that Ireland did not to make any concessions on its low tax corporate rates, the final conclusions of eurozone leaders "note Ireland's willingness to participate constructively (...) in the structured discussions on tax policy issues."

To International Monetary Fund chief Christine Lagarde, the "crucial" element agreed on Thursday was that eurozone leaders decided to prop up countries under existing bailout programmes "until they regain market access".

This would open the way for further financial assistance down the line, possibly under a standby loan that the EU bailout fund would be able to give out under its new powers, modelled on the IMF.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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