Bailout Interest Rate White Flag Department

Journalists sometimes get things wrong, so I’m going to phrase this as follows. Tell me this isn’t true:

Minister of State Brian Hayes has said the Government is looking for a 0.6% reduction in the bailout interest rate during its ongoing negotiations with the EC and the ECB.

Mr Hayes told RTÉ’s Drivetime programme that this would amount to a saving of €150m per year on the remaining amount of the loans which has not yet been drawn down.

All the signs are now that the government has gone into white flag mode on this one (what with the little-remarked-upon previous concession on Anglo-INBS bank bondholders, the flag’s had a busy week).  The key thing to watch for here is the approach of claiming lower and lower figures for what an interest rate reduction can achieve, with the benefit now down to €150 million per year.

Look, this isn’t rocket science. Greece, which hasn’t been very successful in implementing its package, received an interest rate cut of one percent in March. No Irish government could possibly be looking for less than a similar cut of one percent. We are borrowing €45 billion from the EU, so a one percent cut would save us €450 million a year, three times the figure being quoted. With an average maturity of seven and a half years, let’s call it seven, this would save the Irish taxpayer €3.15 billion or about €700 a head. It’s not a game-changer on the debt stability front but it’s not worth dismissing either.

Focusing on getting a cut in the remaining loans that have been drawn down is a red herring. It doesn’t matter that the EU has already sourced funds to lend to us as what we’re discussing cutting here is the EU’s own margin on these loans.

The only possible reason to define down the potential gains from an interest rate cut is to prepare the public for failure to achieve this cut, at which point we’ll be told that it wasn’t important.

Any hope that we might show some backbone on this issue (a la Namawinelake) is fading.

Update: Looking at yesterday’s Dail proceedings, one can find Minister Noonan stating that a one percent reduction in our interest rate will save us about €200 million a year. I know the Minister has the combined brain power of the Department of Finance officials on his side but it still seems to me that one percent of €45 billion is €450 million.