Ms Bowles, elected Chair of the European Parliament’s Economic and Monetary Affairs Committee, has put the idea forward that countries that have availed of the bailout mechanisms from the European Union rescue schemes should be refunded some of the interest they paid when they pay off their borrowings.
Ms Bowles believes that fellow EU countries should not profit from the misfortunes of those who have had to ask for credit.
A statement on the British MEP’s website said her proposal “represents more solidarity with neighbouring European countries and a more effective way of dealing with deficits. As with other countries, the UK currently stands to get a large windfall on the interest rate being charged on Ireland’s debt repayments.”
“Fellow EU countries should be acting out of solidarity with their neighbours, not like investment banks,” said Ms Bowles. The MEP was of the opinion that while those countries that have sponsored rescue packages should not be out of pocket, they should also be guarded against risk. Ms Bowles also believes that they should not benefit from interest-based windfalls.
The proposal outlined by Ms Bowles was as follows: Those countries sponsoring loans at present should put any profit they make above the costs they incur while providing the loan into a holding area. This premium will be kept for the lender if the loan is defaulted on; otherwise it is returned to the borrower. Therefore, the borrower would suffer somewhat while paying the loan back, but would not be taken advantage of by other EU countries that should be supporting them.
“These premiums should be kept in a pool that acts as insurance against default - a bit like a no claims refund,” said Ms Bowles.
Bowles believes that this approach would make for a much healthier, viable EU economy because “struggling countries” would be getting their excess premiums back.
“Also, markets would respond to the likelihood of the borrowing country winning back the pool. It is far more important that we find tools such as this to build sustainable economies across the EU than risk forcing struggling countries into worse-off positions,” claimed Ms Bowles.
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Speaking on Newstalk’s ‘Wide Angle’ last week, Ms Bowles said that if all of Ireland’s loan with the EU were subject to this approach, we could be looking at a refund figure of around 20 per cent of the loans. “This would be a useful pot of money to get back and a good incentive … to endure the hardships and keep going.”
Commenting on the EU’s approach, Ms Bowles said, “We have been looking hard to see what are the carrots; we have got plenty of sticks we [The EU ] are beating you with, but what is the carrot to keep you on the straight and narrow … this [mechanism] provides one.”
When asked by Newstalks’ Ms Coleman why the interest rate is not simply reduced, Ms Bowles said she did not believe that that type of request for a reduction in the interest rate would be passed by the EU, because “there are a significant number that demand that there be pain, because they say otherwise everybody might want to be bad and get a cheaper loan this way.”
“We have to tick the pain box,” concluded Ms Bowles.
On the MEP’s website she says: “At the European Commission’s opening conference for the European Semester, António José Cabral, a senior advisor in European Commission President Barroso’s Cabinet, commented that this idea would be perfectly acceptable if it provided an important incentive for Member States to be more fiscally responsible when working towards rebalancing their books. It was also brought up on Wednesday by the German
Finance Ministry with members of the Economic and Financial Committee of the EU, and was well received.
IMF interest rates
In a transcript of a press briefing by David Hawley, Senior Advisor in the External Relations Department of the International Monetary Fund, the IMF was asked would it consider lowering interest rates for Ireland in light of EU discussions on the same issue?
Mr Hawley said that any IMF loan is made at the SDR interest rate, a rate which moves with the markets and is 3.1 per cent at present.
On whether this could be reduced, Mr Hawley said: “There is a quota review agreed in 2008, which we are hopeful will be approved shortly following consideration by the membership. Ireland is one of those countries whose quota stands to increase under this agreement. As a consequence of that, the amount of its loan relative to its quota would fall, and that would have a bearing on the interest rate that Ireland paid on its borrowing from the Fund.”