Ireland will Pay 5.8% for Bailout as Country's Taxes

Ireland will pay an average of 5.8 percent for international rescue loans as part of an agreement that protected the senior bondholders of Irish banks in the country and maintained the policy of low corporate taxes.

The State received funds amounting to 67.5 million euros ($ 90,000,000,000), with an average of 7 1 / 2 years by the European Union and the International Monetary Fund, the government said yesterday. The average interest rate compares with about 5 percent charged to Greece for three-year loan earlier this year. Holders of subordinated bonds from the bank may have to accept "big hair cuts," said Finance Minister Brian Lenihan.

"I do not think there's any other real options," Cowen told reporters in Dublin the night after the deal was announced, adding that out of the euro or the default of bank bonds were not realistic. "We are not a nation of irresponsible."

The agreement came after the country's banking system collapse threatens to bankrupt the state, sending the yield on the Irish government 10 years to 9.2 percent on Nov. 26 and prompting concern about the spread of the rest of the euro region.

"The interest rate paid is not onerous and effectively removes Ireland from having to issue debt for the next two years," said Charles Diebel, head of market strategy at Lloyds TSB Corporate Bank in London. "Clearly, it is always about trust and this should be sufficient to restore a degree of confidence in Ireland and in particular Ireland's sovereign debt."

Bonus pledge

The premium of Ireland on the performance of the benchmark German 10-year fell 9 basis points, 637 basis points today. It reached a record 656 basis points on November 26, nearly triple expansion four months ago. Spain yield spread fell 3 basis points to 241 basis points, and Portugal was reduced from 6 to 419.

Cowen told reporters he was "not political or institutional" support in Europe to force the loss of the holders of senior bonds, which are guaranteed by the State two years ago. The bonds of the country's banks have fallen on concern that Ireland would be forced to renege on that promise.

Cowen also grabbed the tax rate to 12.5 percent of the country enterprises, which has attracted companies like Google Inc. and Intel Corp. and criticism from some European countries.

Own financial rescue

Under the agreement, Irish banks have up to 35 million euros of aid and the rest of the bailout fund will help the country finance. Spain will contribute € 17500000000 its own reserves.

When the government bond market came in October, had a stack of 20 billion euros in cash for the state until mid-2011. The country controls a pension fund € 24000000000 reserve, created in 2001 to pay pensions in Ireland since 2025. Ten million already committed to the banks.

"The market is concerned to see Ireland is the largest contributor to its own rescue," said Austin Hughes, chief economist at Dublin-based KBC Bank Ireland. "I do not think you can fold our tents and start thinking about Christmas after that."

Irish opposition politicians criticized the deal as they prepare for elections early next year.

"The interest rate of 5.8 percent is too high and borders on the unattainable," said Michael Noonan, a spokesman for the financing of Fine Gael, the main opposition party. "The government has cleared the negotiations."

The deficit target

Much of the program for its own plan of government for four years, released on November 24 that proposed 15 billion of spending cuts and tax increases to reduce the deficit to 3 percent of gross domestic product for the year 2014.

Cowen said yesterday that the State had won one more year to reach that goal if necessary. The deficit is 12 percent of GDP this year, or 32 percent, including a bank bailout.

Ireland will freeze state pensions and raise the retirement age up to 68 per 2028. The government also cut tax breaks for pensions and reduction of 10 percent for the wages of workers of the new government.

Irish banks € 8000000000 immediately to strengthen the capital, and increase by 2 million euros to shed assets, said the central bank. Lenders may use 25 billion euros, depending on how they fare in a round of stress tests in the first half of next year.