THE bailout of Ireland will cost the UK a total of €7.9bn (£6.37bn) after the beleaguered nation agreed an €85bn rescue package yesterday.
George Osborne agreed to stump up a bilateral loan of €3.8bn on top of the UK’s committment to the International Monetary Fund (IMF) and the European Financial Stability Mechanism (EFSM).
The UK will pay 4.5 per cent of the €22.5bn IMF contribution, totalling just over €1bn and 13.8 per cent of the EFSM, coming to €3.1bn.
Altogether Ireland will accept €67.5bn of external support. It will also raid its own reserves to the tune of €17.5bn. Of this, it will take €12.5bn from its state pension fund, with the remaining €5bn coming from cash reserves.
Ireland will make €10bn immediately available to recapitalise its stricken banks, with a further €25bn being set aside in a euro contingency fund to be allocated if they require more money in the future.
The remaining €50bn will go towards general running of the country, including paying the civil service.
Interest payments on the loans will account for a staggering 20 per cent of Ireland’s tax revenue by 2014.
The average rate of interest on the loan will be a relatively large 5.8 per cent. However, reflecting the increasingly hardline approach Germany has been lobbying for, the Eurozone portion of the loan will come with a punative six per cent rate of interest.
The IMF portion of the loan will come with a three per cent rate of interest, rising to four per cent in 2013. The average duration of the loans is seven years.
The deal was thrashed out during a crunch meeting of European finance ministers in Brussels yesterday.
Ireland will be bracing for an anti-European backlash when news of the punative interest rate hits home.
Anger in the country is already boiling over into sporadic bursts of violence and masked protestors yesterday burned pictures of Cowen on the streets of Dublin.
A defeated looking Prime Minister Brian Cowen welcomed the deal yesterday. He said: “This agreement is necessary for our country and our people. The final agreed programme represents the best available deal for Ireland.
“The significant loans being provided to Ireland are necessary to allow us to fund our budgets over the coming years.”
Cowen added the loans will provide money Ireland had already planned to borrow on the international markets and that the rate of interest was comparatively low.