EU loan is no bailout, it's financial bullying.
Should we be taking our case on the EC's extortionate profit margin to the Court of Justice...
SOME members of the European Council are exploiting our crisis in order to profit at our expense. If the interest rates on the EU loans are not reduced, the Irish public will suffer unnecessarily while our European partners profit from these loans.
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.
The IMF is dreaded because of its reputation of treating countries harshly. Nevertheless, the IMF is charging Ireland an interest rate of 4.34 per cent. This rate is far lower than that being charged by our European partners.
The IMF loans are partially in euro, sterling, dollars and yen. The cost of hedging against exchange rate risks has brought the effective interest rate up to 5.2 per cent but there are no such costs associated with loans from the EU as all loans are in euro.
Therefore, the interest rate on the loans from the EU should be compared with the 4.34 per cent rate being charged by the IMF.
By contrast, it is plain to see that the interest rates being charged on loans from the European Union are unjust and unfair. They will add unnecessary hardship onto the Irish people in order to enrich our partners in Europe.
When the loans are fully drawn down, the profit margin charged to Ireland will be €1.3bn per annum.
Put another way, in addition to paying for the EU's borrowing costs, Ireland will be paying a further €1.3bn of pure profit to our partners in Europe.
Let's translate the misery that this €1.3bn bill will inflict on the Irish people. Ireland's austerity measures have been the most severe in any advanced economy during a recession in the past 30 years. Tax increases and social welfare cuts have squeezing families' incomes to the point where a third of the population now has a disposable income of less than €70 a month.
An annual transfer of €1.3bn from Irish taxpayers to European governments is a huge additional burden for a country already stretch on the rack.
€1.3 billion equates to:
- Three times the €420m raised by the changes to the Universal Social Charge introduced in December's Budget.
- A third higher than the €1bn saved by reducing public sector wages in Budget 2010.
- Three times the €370m reduction in child benefit in Budget 2010 and Budget 2011.
- One and a half times the €822mn reduction in social welfare payments in Budget 2010 and Budget 2011.
- Almost the €1.4bin saved from the introduction of the public sector pension levy.
€1.3bn is in excess of one per cent of Ireland's national income.
To put this into scale, it would be the equivalent of charging Germany a profit margin of €26bn per annum and the equivalent of charging France a profit margin of €21bn per annum.
The European Financial Stabilisation Mechanism was established under Article 122 of the Lisbon Treaty. This allows the European Council to grant financial assistance to member-states in difficulty "in a spirit of solidarity". Charging such an extortionate profit margin on top of the interest rate is stretching this principle to breaking point.
There is no solidarity in charging Ireland over €2m for every €1m it costs Europe to borrow money.
There is no solidarity in insisting on earning a profit of €1.3bn annually from Ireland after we have been hit with the greatest financial crisis in Europe's history.
There is no solidarity in forcing Ireland to raise taxes, slash wages and cut social welfare in order to pay billions of euro in profit to the rest of Europe.
There is no solidarity in profiteering from Ireland's misfortune and hardship.
Should we be asking the Attorney General on the legal status of this issue? Is the European Council in breach of the Lisbon Treaty? If so, then the next logical step would be to present our case to the European Court of Justice.
Article by Peter Mathews (Fine Gael TD) - Sunday Independent