The Government rightly continues to make the case that there is a common interest in lowering the interest rate on EFSF/EFSM borrowings, among other adjustments to the programme. Writing in the Sunday Independent today, Peter Mathews – in one of the milder articles in the paper – goes quite a bit further and accuses “EU partners” of “profiteering” (see here).
Last January, the European Financial Stabilisation Mechanism charged Ireland an interest rate of 5.51 per cent for money that it borrowed at 2.59 per cent. A month later, the European Financial Stabilisation Fund charged Ireland an interest rate of 5.9 per cent for money that it borrowed at 2.89 per cent. On this basis, the EFSF earns a profit margin of 3.01 per cent and the EFSM earns a profit margin of 2.93 per cent.
These margins are draconian. The majority of the interest that Ireland pays is not used to pay for the EU’s borrowing costs. It is excessive profit for the countries that are lending us money. For every €1m that Ireland pays in interest costs, Ireland must pay another €1.08m so that our EU partners make a profit. This, clearly, is not a bailout. It is exploiting our vulnerability. It is financial bullying.
It would appear that Peter believes that the EU is taking on zero risk in lending to Ireland. (Formally, at least, the EFSF has eschewed IMF-style preferred creditor status.) I would be interested if readers agree that these official funders can rest assured their loans are riskless.
The Sunday Business Post provides its usual welcome calm analysis of the options (no web access until Monday). Understandably frustrated with the pace at which EU governments are responding in terms of providing a mutually-advantageous exit route from the crisis, its lead editorial advocates taking a tougher line, notably with Anglo (and presumably) INBS) senior debt.
With our government bond interest rate soaring and our banks locked out of the markets, we haven’t got a lot to lose. We are most unlikely to be able to return to the markets on the schedule set down in the EU/IMF programme late next year, or in early 2013. It would be much better realise this and arrange some restructuring of the deal now – and there are many ways this could be done. [Emphasis added]
Just looking at the first sentence, my interpretation of the first clause is that the resulting dependence on external support means, unfortunately, we do have a lot to lose. With popular pressure for a tougher line ramping up, it seems a worthwhile issue to debate.