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Bailed-out Ireland could stump up €11.1 billion… to pay for new bailout fund

The new European Stability Mechanism will need will claw back a huge amount of the loans it’s already giving us.

Image: danielmoyle via Flickr

EUROPE’S NEWLY EXPANDED bailout fund will force Ireland to pay out over €11.1bn to help bail out Europe’s bigger economies, it has emerged.

The new European Stability Mechanism, which will replace the current EFSF and EFSM mechanisms in 2013, will originally be funded to the tune of €80bn by the 17 members of the Euro – with Ireland expected to do its bit, in spite of its own bailout loans.

If the fund is ever called into action – which it may be, if larger economies like Italy and Spain are priced out of the regular money markets – the fund will then expand up to an extraordinary €700 billion.

Ireland is required to cover just under 1.6 per cent of the cost of funding the new bailout pot – meaning it will have to pay at least €1.273bn in cash to take care of its share, and could have to stump up almost €10bn more if other bailouts are needed elsewhere.

Revealing Ireland’s obligations in a parliamentary question tabled by the Socialist Party’s Clare Daly, finance minister Michael Noonan said the initial €1.273bn would be paid in five equal instalments – of around €254m – beginning next July.

These €254m payments will be provided for in the usual December Budgets, Noonan added. The remaining €9.87bn will be offered in ‘callable capital’, to be paid whenever the bailout fund is called into action.

Noonan also confirmed that the treaty establishing the European Stability Mechanism, which was signed last month, does not contain an opt-out clause – meaning there is no way for Ireland to escape its obligations.

This lunchtime the prospect of an Italian default was reignited, with the money markets pricing a 10-year loan to Italy at over 5.75 per cent – approaching the 6 per cent mark after which borrowing would become relatively unsustainable.

Spain, too, saw its cost of borrowing surge to beyond the 6 per cent mark.

Ireland was originally exempted from having to fund Greece’s first bailout when it accepted its own in November of last year. Greece’s own bailout was organised before the EFSF came into being.

In a separate parliamentary response, Noonan confirmed that Ireland was set to draw down the next €6bn of its bailout loans next month. Ireland has already drawn down €17.8bn of its bailout loans.

Yesterday Noonan told the Oireachtas committee on finance that the reduced interest rate negotiated by Ireland last week would apply to the European loans Ireland had already drawn down, as well as the loans it may access in the future.

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