Business

Little British charity in Irish loan

BBC business editor Robert Peston on loaning money to Ireland

When the chancellor originally announced that the UK would be making an emergency loan to Ireland, he faced criticism that he was in some sense squandering precious resources that could be better deployed at home.

He may now face a rather different attack, that the Exchequer will be doing rather too well out of the loan - and that Ireland is paying a pretty steep price for British help.

The interest rate on the £3.25bn being made available in eight lumps over the next three years will be 2.29% above the cost for the British government of borrowing for seven and a half years.

Which means that a profit is more or less guaranteed for Britain.

George Osborne today estimated that profit at £440m in fees and interest over the 10 years until we get all our money back.

The first £400m being provided to Ireland will carry an interest rate of 5.9%, a touch lower than the 6.1% being charged by the European Union's financial stability facility.

The concern for the Irish government is that having to pay interest at that kind of level will actually set back the prospects for an economic recovery - because paying an interest rate greater than the underlying growth rate of the Irish economy will put sustained pressure on the resources available for public spending or tax cuts over many years to come.

Or to put it another way, there is probably more punishment than charity in the terms of the loans being provided by the EU and UK.‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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