First €5bn of EU-IMF bailout to be delivered next week

Scofflaw

I see that the first tranche of the bailout funds are to be delivered next week, according to the IT.

In a mildly pleasant surprise, the rate on the European money is lower than originally expected at 5.51% - the issuance of bonds by the Commission went well, apparently, and was taken up at an average rate of 2.59%. Given the still high rates of market turmoil, and the fact that the markets know the EU is borrowing on our behalf, that's a small vote of confidence in the whole mechanism.

cordially,
Scofflaw

amacca

Scofflaw wrote: »

In a mildly pleasant surprise, the rate on the European money is lower than originally expected at 5.51% - the issuance of bonds by the Commission went well, apparently, and was taken up at an average rate of 2.59%.

cordially,
Scofflaw

Does that mean, Ireland gets to borrow this tranche @ average of 2.59%?

If not what sort of additional percentage do we pay on top?

FreudianSlippers

That is interesting news. I only skimmed the article but thought this information was also interesting:

The figures show that tax receipts in 2010 were €700 million ahead of expectations at €31.75 billion, but down 3.9 per cent on the previous year, while Government spending of €46.4 billion was down 1.5 per cent compared to 2009.

Also, do we know how much was borrowed from the EU and how much from the IMF of this €5bn?

FreudianSlippers

amacca wrote: »

Does that mean, Ireland gets to borrow this tranche @ average of 2.59%?

If not what sort of additional percentage do we pay on top?

FTA:

The annual interest the commission pays for borrowing the money will be 2.59 per cent. The commission adds a 2.925 percentage point annual surcharge to that rate when lending the money on to Ireland, meaning the Government will pay annual interest of some 5.51 per cent for the loan.

amacca

OisinT wrote: »

FTA:

So, does that mean that if it had cost them 5.51 as expected they would have added another 2.59 on top and the rate charged to us would be 8% odd.

its just coincidence that the 5.51 we ended up paying matches exactly the rate the loans were expected to cost on the European market right?

Scofflaw

amacca wrote: »

Does that mean, Ireland gets to borrow this tranche @ average of 2.59%?

If not what sort of additional percentage do we pay on top?

As OisinT says, the European funds - it's not clear from the article whether this is the EFSM or EFSF part of the money (the Commission, as far as I know, is handling the sale of bonds for both) - have an agreed margin on top of whatever they borrow at. The reference to the margin of 2.925% suggests that this might be the EFSF money, as does the fact that the EFSF was due to make its first bond sale.

The reason for the additional margin is that if the money was simply raised to be lent on to Ireland at exactly the same rate as it's borrowed, then either the other Member States have to absorb the whole risk of lending to Ireland, or the markets would only lend at the same rate they would charge Ireland.

The former would mean the taxpayers in the Member States lending the money would be covering the entire gap between the markets' perceived risk of Irish default (currently still somewhere between 7.7% for five-year and around 9% for 10-year) and their borrowing rate - that is, they would be covering somewhere between 4.7% and 6.5% of perceived default risk.

And there's the rub - it's risky to lend to Ireland, and someone, somewhere, has to cover that risk somehow. The current arrangement, while non-ideal, means that Ireland bears part of the risk, and the other Member States the rest. If you take it that the markets are correct in their pricing of Ireland's risk of default, then currently, you can view the arrangement as Ireland bearing the risk from 2.59% to 5.51% (that's the 2.925%), while the Member States who are guaranteeing the money on our behalf are bearing the rest of the gap between there and the market rates (2.19% to 3.44%).

cordially,
Scofflaw

Scofflaw

amacca wrote: »

So, does that mean that if it had cost them 5.51 as expected they would have added another 2.59 on top and the rate charged to us would be 8% odd.

its just coincidence that the 5.51 we ended up paying matches exactly the rate the loans were expected to cost on the European market right?

Not sure where that "expected 5.51%" is from, but yes, it would have to be a coincidence (as much as anything in a money market can be) - the additional margin was stipulated back in December, when the rate at which the European bond issues would be taken up was not yet known. It couldn't be changed to get the 5.51% figure, and if anyone could simply tell the money markets what rate to take the bonds up at, we wouldn't be in the current position!

cordially,
Scofflaw

amacca

Scofflaw wrote: »

Not sure where that "expected 5.51%"
cordially,
Scofflaw

apologies, It came from a misread of your op....

I read "it came in lower than expected at 5.51%"

as "it came in lower than the expected 5.51%" in my skimming hurry

hence the confusion.

all clear now....... out of curiosity how much worse than 5.51% were commentators etc realistically expecting it to be? (really up to 7/8+% like post#6 above?)

trying to figure out how happy I should be about this news

Riskymove

Scofflaw wrote: »

Not sure where that "expected 5.51%" is from, but yes, it would have to be a coincidence (as much as anything in a money market can be)

he has misunderstood your post

he thinks you meant that the commission expected to get 5.51

EDIT: crossed post

Scofflaw

amacca wrote: »

apologies, It came from a misread of your op....

I read "it came in lower than expected at 5.51%"

as "it came in lower than the expected 5.51%" in my skimming hurry

hence the confusion.

all clear now....... out of curiosity how much worse than 5.51% (up to 7/8%?) were commentators etc realistically expecting it to be?

trying to figure out how happy I should be about this news

The expected rate of borrowing meant that the expected interest rate charged to Ireland was 5.7% for the EFSM, and 6.05% for the EFSF. This rate is lower than either of those - by nearly half a percent if the money being referred to is the EFSF money, or by 0.19% if it's the EFSM money.

Originally, when the bailout was first known about, the speculation by people like Karl Whelan was that the funds would wind up charging somewhere over 7%, or somewhere between 6.5% and 7%. I think the figure given by the panel of economists on Vincent Browne was 6.7%. When the EFSF mechanism was first under discussion, there were quite a few economic analysts who couldn't see the rates being less than 8%.

The reason for being (a little bit) happy about it is two-fold - first, it's a lower interest rate than we were expecting on the first tranche, which is a good thing in itself - and second, it's a good indicator that despite the current market turmoil, the borrowing rates for the European funds is lower than expected, which means that there's more confidence in the European fund mechanism than expected.

cordially,
Scofflaw

amacca

Scofflaw wrote: »

borrowing rates for the European funds is lower than expected, which means that there's more confidence in the European fund mechanism than expected.

Lets hope its the start of a trend....confidence seems to be in scarce supply these days.

ei.sdraob

Does that mean we already spent the NPRF and NTMA cushions? :eek:
Weren't these supposed to be used up first before we got a cent from IMF/EU

WalterMitty

what are the actual mechanics of such large sums moving? Does ECB have an account with a private bank that wires it to Irish govs account with central bank or a private bank? Obviously theres no physical money so the bank accounts of the companies buying ECB bonds are reduced by amount they send to ECB whose account gets risen up. They then transfer this to a bank here?

Scofflaw

ei.sdraob wrote: »

Does that mean we already spent the NPRF and NTMA cushions? :eek:
Weren't these supposed to be used up first before we got a cent from IMF/EU

The NPRF/NTMA money is for the banks, so the EU/IMF money is for current spending. That was the deal as I far as I could see, although I appreciate people disagree with me on that, claiming that most of the bailout money was going to the banks - my view was (and is) that the majority of the bailout fund is for current spending, while the Irish contribution is going into the banks, part as the immediate capital needs of c. €10bn, and the rest as part of the 'emergency reserve' for the banks.

We're still running a government deficit, after all, and €50bn of the bailout is for that - which is a figure that suggests no use of the NPRF/NTMA money for current spending, and no question of burning through that money before we start in on the bailout fund.

cordially,
Scofflaw

Scofflaw

WalterMitty wrote: »

what are the actual mechanics of such large sums moving? Does ECB have an account with a private bank that wires it to Irish govs account with central bank or a private bank? Obviously theres no physical money so the bank accounts of the companies buying ECB bonds are reduced by amount they send to ECB whose account gets risen up. They then transfer this to a bank here?

Possibly to our Central Bank?

cordially,
Scofflaw

later12

Scofflaw wrote: »

The reason for being (a little bit) happy about it is two-fold - first, it's a lower interest rate than we were expecting on the first tranche, which is a good thing in itself - and second, it's a good indicator that despite the current market turmoil, the borrowing rates for the European funds is lower than expected, which means that there's more confidence in the European fund mechanism than expected.

Indeed, however it's a cautionary sort of optimism: the problem is that with these great EFSF bonds for sale, why on Earth would you buy Spanish or Portuguese bonds now? it will be interesting to see how the European bond market behaves next.

femur61

But, wasn't Lenny and all saying we had enough money to do us till next year?

Scofflaw

later10 wrote: »

Indeed, however it's a cautionary sort of optimism: the problem is that with these great EFSF bonds for sale, why on Earth would you buy Spanish or Portuguese bonds now? it will be interesting to see how the European bond market behaves next.

Presumably, you buy them because you get a greater rate of return, and if the EFSM money is cheaper than anticipated, then the likelihood that Spain or Portugal will get bailed out rather than default, or in such a way as they're less likely to default (after all, isn't the complaint about the higher rate that it raises the probability of default?) means that the risk on those bonds is actually slightly lower than before.

Or, this being the financial markets, not, because that's a rational position. As you say, it will be interesting to watch.

cordially,
Scofflaw

Scofflaw

femur61 wrote: »

But, wasn't Lenny and all saying we had enough money to do us till next year?

Heh - yes, they did say that.

cordially,
Scofflaw

ei.sdraob

Ok I read this several times, straight from the horses mouth

€5 billion bond issue for Ireland
The European Commission today placed a €5 billion bond issue on behalf of the European Union under the European Financial Stability Mechanism (EFSM) to finance the first tranche of the EU/IMF financial support agreed for Ireland last December.

The issuance spread was fixed at mid-swap plus 12 basis points, at the tight end of the initial price guidance.

The resulting interest rate of the loan to Ireland will be 5.51% composed of the cost of borrowing for the EU at 2.59% plus a margin of 2.925% as decided by the Council on 7 December 2010. This margin goes back to the EU Budget and is distributed to the EU 27 MS at the end of each financial year. The Commission does not charge any fees or keep any margin for its own use.

The funds will be disbursed to Ireland on 12 January (five business days settlement).

The investor's interest was very strong, and within less than one hour the book was oversubscribed by more than 3 times. Investor demand came from around the world and from all types of investors.

This is a sign of confidence in the euro area and a recognition of the EU as a prime issuer.

The EU borrows in euro for on-lending in euro to sovereigns only on a back to back basis.

Background
The EU rated Aaaa/AAA/AAA by Moody's, S&P and Fitch

Under the EFSM the EU can borrow up to €60 bn to on-lend to any EU Member State, whereas under the Balance of Payments (“BoP”) facility, support is available only to Member States which have not yet adopted the EUR.

In the context of the EFSM and based on the existing financial support programme to Ireland, the EU's funding program in 2011 could reach up to €17.6 bn raised through benchmark transactions. There will also be up to €1.5 bn under the BoP facility to finance commitments to Romania.

See also IP/10/1768 issued on 21 December 2010 regarding further funding plans for Ireland.

Why the hell is the margin % larger than the funding % ?
@Scofflaw I am sorry to say it but we are being shafted here, that's a huge margin and it goes back to EU. So much for "solidarity".

the overall rate is 5.51% not ~2%

kaiser sauze

Scofflaw wrote: »

The NPRF/NTMA money is for the banks, so the EU/IMF money is for current spending. That was the deal as I far as I could see, although I appreciate people disagree with me on that, claiming that most of the bailout money was going to the banks - my view was (and is) that the majority of the bailout fund is for current spending, while the Irish contribution is going into the banks, part as the immediate capital needs of c. €10bn, and the rest as part of the 'emergency reserve' for the banks.

We're still running a government deficit, after all, and €50bn of the bailout is for that - which is a figure that suggests no use of the NPRF/NTMA money for current spending, and no question of burning through that money before we start in on the bailout fund.

cordially,
Scofflaw

The EU/IMF money also adds a €25Bn 'contingency' for the banking system on top of the€50Bn for current spending 2011-2015 (the new year we have to reach the 3% target).

ei.sdraob wrote: »

Ok I read this several times, straight from the horses mouth

Why the hell is the margin % larger than the funding % ?
@Scofflaw I am sorry to say it but we are being shafted here, that's a huge margin and it goes back to EU. So much for "solidarity".

the overall rate is 5.51% not ~2%

Scofflaw has never stated that it was ~2%, he is remarking how the rate is 5.51%, not the 5.83% (smoothed rate) that was widely reported.

Even from your own link, the money is not kept by The EU, it is divided out between the twenty-seven, of which we are one.

ei.sdraob

kaiser sauze wrote: »

The EU/IMF money also adds a €25Bn 'contingency' for the banking system on top of the€50Bn for current spending 2011-2015 (the new year we have to reach the 3% target).




Scofflaw has never stated that it was ~2%, he is remarking how the rate is 5.51%, not the 5.83% (smoothed rate) that was widely reported.

Even from your own link, the money is not kept by The EU, it is divided out between the twenty-seven, of which we are one.

Yes why are the other 26 charging higher interest on top of the money raised? That's not solidarity nor bailout

kaiser sauze

ei.sdraob wrote: »

Yes why are the other 26 charging higher interest on top of the money raised? That's not solidarity nor bailout

Should they give it to us at 0% and cop the bond interest payments themselves?

Or, should they give it to us with a rebate, like a Credit Union!

The rate is high, I am on record as stating that, but we would be paying circa 8% on the bond markets ourselves.

zig

ei.sdraob wrote: »

Ok I read this several times, straight from the horses mouth





Why the hell is the margin % larger than the funding % ?
@Scofflaw I am sorry to say it but we are being shafted here, that's a huge margin and it goes back to EU. So much for "solidarity".

the overall rate is 5.51% not ~2%

He never said it wasnt 5.51%, anyway regarding the rest of your post, I completely agree, we are being shafted simple as, this shouldnt be called a bailout or rescue package or anything like that. Its more of a case of "If your screwed, that means were screwed so we better do something, oh but we're gonna charge you for it by the way."

And I noticed Scofflaw mentioned someone on Vincent Browne saying 6.7%, yes thats true, but as far as I remember that figure was actually "leaked" from FF, at least one of them had mentioned it anyway. They weren't just speculating on Vincent Brown, they were quoting. I might also remind people that alot of responses to that was, "Oh they'll release the 6.7 figure so the real figure wont look as bad". Well they did it, and it seems to have worked a charm.

Scofflaw

zig wrote: »

He never said it wasnt 5.51%, anyway regarding the rest of your post, I completely agree, we are being shafted simple as, this shouldnt be called a bailout or rescue package or anything like that. Its more of a case of "If your screwed, that means were screwed so we better do something, oh but we're gonna charge you for it by the way."

And I noticed Scofflaw mentioned someone on Vincent Browne saying 6.7%, yes thats true, but as far as I remember that figure was actually "leaked" from FF, at least one of them had mentioned it anyway. They weren't just speculating on Vincent Brown, they were quoting. I might also remind people that alot of responses to that was, "Oh they'll release the 6.7 figure so the real figure wont look as bad". Well they did it, and it seems to have worked a charm.

Not the VB figure, no - that was according to the 'economic panellists'. You have to remember that Karl Whelan and other commentators provided their own calculations of the probable rate rather than figures "leaked from sources close to the talks". The 'leaked' figures were, as far as I recall, lower than those provided on various blogs.

As to the rate, and the idea that we're being "shafted" - the addition of a margin on top of the rate is explicit in the setups for the European funds. And where solidarity comes in is, as I pointed out up-thread, in the fact that the other member states are absorbing all the risk of lendng to Ireland above that 5.51%. Since the markets currently have our default risk at around 7.7% over 5 years and around 9% over 10 years, that means they're absorbing around 2.84% of risk in lending to us, free and gratis. Risk-sharing seems like a solidarity burden to me.

Unless, of course, one believes that the market pricing of our default risk is meaningless? Or that the other member states, who didn't get us into this position, should absorb the entire risk, perhaps?

cordially,
Scofflaw

ednwireland

femur61 wrote: »

But, wasn't Lenny and all saying we had enough money to do us till next year?

Scofflaw wrote: »

Heh - yes, they did say that.

cordially,
Scofflaw

first thing that crossed my mind when i saw that headline ! :rolleyes:

Noreen1

We were supposed to be funded well into this year. Wasn't there also a stipulation that we had to spend the 17.5 Billion pensions reserve, before receiving any Bailout funding?

It seems our Government have been somewhat economical with the facts - again..........

later12

Scofflaw wrote: »

And where solidarity comes in is, as I pointed out up-thread, in the fact that the other member states are absorbing all the risk of lendng to Ireland above that 5.51%. Since the markets currently have our default risk at around 7.7% over 5 years and around 9% over 10 years, that means they're absorbing around 2.84% of risk in lending to us, free and gratis. Risk-sharing seems like a solidarity burden to me.

We would get greater "solidarity" from the IMF if they were bailing us out alone. The EU aspect of the bailout makes it the more expensive.

Scofflaw

later10 wrote: »

We would get greater "solidarity" from the IMF if they were bailing us out alone. The EU aspect of the bailout makes it the more expensive.

Not actually the case - in fact, as far as this tranche goes, the rate for the EU money is less than the expected rate from the IMF (5.51% EU as opposed to 5.7% expected IMF), although we'll need to see what the exchange costs of the IMF money actually is.

However, the IMF do not in fact offer any solidarity, because they aren't doing any risk-sharing. The IMF is a preferred creditor, which means we cannot pay anybody else back before them (if we did, the IMF would take the money from them) - whereas the EFSM/EFSF aren't. The latter are therefore sharing the risk, the IMF aren't. The IMF will get their money - there is no risk to them, and they are therefore not taking on any risk on our behalf, unlike the European funds.

cordially,
Scofflaw

later12

I'm not talking about the interest rate alone, I'm saying it would be a better deal for us overall, financially; in that we would owe less overall if it were the IMF alone from whom we were borrowing the money.

Scofflaw

later10 wrote: »

I'm not talking about the interest rate alone, I'm saying it would be a better deal for us overall, financially; in that we would owe less overall if it were the IMF alone from whom we were borrowing the money.

Except that, as I've pointed out, the cost of this first tranche from the European funds is lower than the expected cost of money from the IMF, which contradicts your position.

cordially,
Scofflaw

later12

Scofflaw wrote: »

Except that, as I've pointed out, the cost of this first tranche from the European funds is lower than the expected cost of money from the IMF, which contradicts your position.

cordially,
Scofflaw

How? I don't see how it contradicts my position. If we were borrowing from the IMF alone we would need to borrow considerably less overall, that would offset this minor interest rate disparity rather significantly.

kaiser sauze

later10 wrote: »

How? I don't see how it contradicts my position. If we were borrowing from the IMF alone we would need to borrow considerably less overall, that would offset this minor interest rate disparity rather significantly.

Why would we "need to borrow considerably less overall" if we only borrowed from The IMF?

Scofflaw

later10 wrote: »

How? I don't see how it contradicts my position. If we were borrowing from the IMF alone we would need to borrow considerably less overall, that would offset this minor interest rate disparity rather significantly.

I don't see how we would wind up borrowing less - neither the bank recapitalisation requirements nor the government deficit are dependent on the source from which we borrow. Our borrowing requirements were set out by the Irish government, after all.

slightly puzzled,
Scofflaw

later12

If we borrow from the IMF the principle aggregate sum is pretty much forwarded to Ireland at the appropriate interest rate which, admittedly is similiar to the EU rates.
However the Europeans raise a larger aggregate sum to retain a fingible cash reserve as well as a loan cash buffer before onloaning the deduction at a rate sometimes similar to and sometimes greater than the IMF rate - in both cases the total aggregates must be repaid by Ireland, with interest.

Scofflaw

later10 wrote: »

If we borrow from the IMF the principle aggregate sum is pretty much forwarded to Ireland at the appropriate interest rate which, admittedly is similiar to the EU rates.
However the Europeans raise a larger aggregate sum to retain a fingible cash reserve as well as a loan cash buffer before onloaning the deduction at a rate sometimes similar to and sometimes greater than the IMF rate - in both cases the total aggregates must be repaid by Ireland, with interest.

That applies only to the EFSF funding (the multilateral funding as opposed to the EU funding), and is already factored into the calculated rate for the EFSF:

NTMA wrote:

In order to obtain funds for on lending to Ireland the EFSF will borrow on the international capital markets on the strength of guarantees provided by Euro area countries (excluding Ireland and Greece). In order to obtain the top AAA rating from the credit rating agencies it was necessary for the EFSF to put in place certain credit enhancements in the form of collateral and the cost of this arrangement is reflected in the interest rate charged by EFSF on its lending. The technical assumption is made that the bilateral loans from the three EU Member States will be on the same terms as the funds from the EFSF.

The effective rate charged to Ireland and the EFSF additional capital requirements aren't separate and additive - the latter is already factored into the calculation of the former. So, if one is going to consider the additional €3.5bn the EFSF raises over and above the amount actually lent to Ireland as an issue, one has to lower the effective rates, since that's already factored in - the 120% raised over lent is the main credit enhancement in the EFSF.

cordially,
Scofflaw

later12

Scofflaw wrote: »

That applies only to the EFSF funding (the multilateral funding as opposed to the EU funding), and is already factored into the calculated rate for the EFSF:



The effective rate charged to Ireland and the EFSF additional capital requirements aren't separate and additive - the latter is already factored into the calculation of the former. So, if one is going to consider the additional €3.5bn the EFSF raises over and above the amount actually lent to Ireland as an issue, one has to lower the effective rates, since that's already factored in - the 120% raised over lent is the main credit enhancement in the EFSF.

cordially,
Scofflaw

But this tranche is from the EFSM and not the EFSF. We would not seriously be expecting the EFSF money to come in at a rate lower than the IMF money nor at the 5.51% figure, and that EFSF money will undoubtedly form the large bulk of the Irish bailout fund as opposed to EFSM funds. I still don't see how this refutes the point that we would be better off getting 100% of the aggregate loan from the IMF.

Scofflaw

later10 wrote: »

But this tranche is from the EFSM and not the EFSF. We would not seriously be expecting the EFSF money to come in at a rate lower than the IMF money nor at the 5.51% figure, and that EFSF money will undoubtedly form the large bulk of the Irish bailout fund as opposed to EFSM funds. I still don't see how this refutes the point that we would be better off getting 100% of the aggregate loan from the IMF.

The EFSM money is €22.5bn, the EFSF money is €17.5bn, so that's the wrong way round. We don't yet know the rate for the EFSF money, because they haven't had their bond sale yet, but we do know that the EFSM money is cheaper than the expected rate for the IMF money, while the EFSF rate is higher than the IFM rate partly because of the 120% requirement, so it really doesn't make much sense to claim - at this point, or on that basis - that borrowing the entire amount from the IMF would be cheaper. Even assuming, of course, that such an option was actually available.

cordially,
Scofflaw

later12

Scofflaw wrote: »

The EFSM money is €22.5bn, the EFSF money is €17.5bn, so that's the wrong way round.

Hang on are you talking about the lending capacity or the aggregate funding sum, because my understanding is that the EFSF are actually borrowing significantly more than that as part of the Irish bailout.

Scofflaw

later10 wrote: »

Hang on are you talking about the lending capacity or the aggregate funding sum, because my understanding is that the EFSF are actually borrowing significantly more than that as part of the Irish bailout.

There's three parts to the bailout fund:

IMF: €22.5bn
EFSM: €22.5bn
EFSF & bilateral loans: €22.5bn

€17.5bn is the EFSF contribution to the bailout - the rest of that €22.5bn is from the bilateral loans. It's in the NTMA note.

So, when you say 'significantly more', what are we talking about exactly? Presumably not the extra €3.5bn the EFSF would actually guarantee, because while that's certainly "more", it's not quite "significantly more", and certainly doesn't increase the EFSF part of the bailout fund to more than the EFSM part. Have you a source for the 'significantly more' bit?

cordially,
Scofflaw

later12

Scofflaw wrote: »

There's three parts to the bailout fund:

IMF: €22.5bn
EFSM: €22.5bn
EFSF & bilateral loans: €22.5bn

€17.5bn is the EFSF contribution to the bailout - the rest of that €22.5bn is from the bilateral loans. It's in the NTMA note.

So, when you say 'significantly more', what are we talking about exactly? Presumably not the extra €3.5bn the EFSF would actually guarantee, because while that's certainly "more", it's not quite "significantly more", and certainly doesn't increase the EFSF part of the bailout fund to more than the EFSM part. Have you a source for the 'significantly more' bit?

Presumably you are aware that the net disbursement to Ireland of 17,5 billion euros is neither the EFSF loan amount nor is it the amount of our repayment, nor is the aggregate sum upon which we pay interest of an anticipated 6% (approx). The gross sum (the principal aggregate loan) is 27 billion euro

http://ec.europa.eu/ireland/press_office/news_of_the_day/eu_and_efsf_funding_plans_to_provide_financial_assistance_for_ireland_en.htm

kaiser sauze

later10 wrote: »

Presumably you are aware that the net disbursement to Ireland of 17,5 billion euros is neither the EFSF loan amount nor is it the amount of our repayment, nor is the aggregate sum upon which we pay interest of an anticipated 6% (approx). The gross sum (the principal aggregate loan) is 27 billion euro

http://ec.europa.eu/ireland/press_office/news_of_the_day/eu_and_efsf_funding_plans_to_provide_financial_assistance_for_ireland_en.htm

Will we be paying interest to EFSF calculated on the amount they fund themselves and not the loan amount advanced to us?

Scofflaw

later10 wrote: »

Presumably you are aware that the net disbursement to Ireland of 17,5 billion euros is neither the EFSF loan amount nor is it the amount of our repayment, nor is the aggregate sum upon which we pay interest of an anticipated 6% (approx). The gross sum (the principal aggregate loan) is 27 billion euro

http://ec.europa.eu/ireland/press_office/news_of_the_day/eu_and_efsf_funding_plans_to_provide_financial_assistance_for_ireland_en.htm

Ah - I see where you're getting that. The EFSF is lending us only €17.5bn, but appears to be raising the money for the bilateral loans as well, and on the same 120%-of-capital basis. The €27bn is 120% of the whole €22.5bn being lent to us by other countries - multilateral and bilateral - as opposed to the IMF or EU money.

Sorry, the way you were calculating it made it seem as if the EFSF was raising about €10bn more than they were lending, whereas in fact the multilateral and bilateral loans are both being raised by the EFSF at 120% capital - the excess is €4.5bn over €22.5bn, not €9.5bn over €17.5bn.

Will we be paying interest to EFSF calculated on the amount they fund themselves and not the loan amount advanced to us?

Yes, but that's factored into the effective interest rate the EFSF charges:

EFSF: 6.05 per cent per annum. In order to obtain funds for on lending to Ireland the EFSF will borrow on the international capital markets on the strength of guarantees provided by Euro area countries (excluding Ireland and Greece). In order to obtain the top AAA rating from the credit rating agencies it was necessary for the EFSF to put in place certain credit enhancements in the form of collateral and the cost of this arrangement is reflected in the interest rate charged by EFSF on its lending. The technical assumption is made that the bilateral loans from the three EU Member States will be on the same terms as the funds from the EFSF.

cordially,
Scofflaw