European Union (EU) finance ministers have approved a £72 billion bailout package for debt-laden Ireland, which will include a total British contribution of £5.9 billion.
The ministers have also brought forward proposals for a permanent mechanism to deal with debt crises in the continent, in a bid to prevent it spreading into other peripheral nations like Portugal and Spain.
The Ireland package includes loans of £42.5 billion to boost the government’s finances, £8.5 billion to inject immediate liquidity into its banking system and £21.2 billion as a further contingency for the banks.
Around £15 billion is being contributed by the Irish government itself, with £19 billion coming from the International Monetary Fund (IMF) and the rest from EU member states. Britain’s contribution includes direct loans of £2.7 billion and contributions to the wider EU bailout fund.
George Osborne, the Chancellor of the Exchequer, says: “The interest rate and the conditions are all going to be very similar to those agreed with the IMF and other European countries.” (article continues below)
The Irish government says it expects rates on the loans to average at 5.8%
Ireland has also confirmed further ’austerity’ spending cuts of £13 billion as part of the package, which was agreed after six hours of talks between finance ministers in Brussels this weekend.
Elsewhere the “European stabilisation mechanism” (ESM) is intended to be launched from July 1, 2013 and will replace the current £374 billion eurozone stability programme.
The ESM will be designed to allow private bondholders to share the cost of any future government debt restructures, by the use of collective action clauses.
These will allow stricken governments to strike restructure deals with a majority of 75-80% of bondholders, which could include permitting delayed debt repayments or interest payments or even write-downs on the value of bonds.
Talks over the mechanism were originally intended to take place in December.