When is a Bailout not a Bailout? – When it is a “Sub-Prime” Loan.


European Bailout

Has anyone gotten tired of constantly listening to how we have received a “bailout” from the ECB and IMF? I have.  I think that we should really call it what it is – not a Bailout, but a SUB-PRIME LOAN.

Investopedia defines a Subprime Loan as follows:-
“A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.
 Subprime loans tend to have a higher interest rate than the prime rate offered on traditional loans. The additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments over the life of a longer term loan.”
Now if you replace the word “individuals” with “Countries” and of course the phrase “tens of thousands of dollars” with “billions of Euros” then I think it becomes very clear.
 Our previous government negotiated a facility of €85 billion at an average rate of 5.83% to extricate the country from the banking quagmire.  Greece is currently paying 5%.  If the new coalition government (Fine Gael & Labour) is to renegotiate the terms of the Loan then the first step should be to stop calling it a bailout.  We are constantly on the negotiating backfoot when we accede to such terminology.
 In order to renegotiate the terms of the Loan and also to protect our Corporation Tax rate we should remember a number of simple facts:-
  • The Irish have been good Europeans – twice (in 2002 and 2009) we re-voted on European Referendae (Nice and Lisbon) until Europe got the vote they wanted.
  • The Irish have taken the austere budgetary medicine pretty much on the chin and with a maturity which contrasts with our national financial immaturity during the Celtic Tiger.
  • The banking crisis was not of the Irish Peoples making.
  • Ireland is the only EU state without a land link to its fellow members.  Essentially this means that for any industry to export goods it has to go by air or sea.  An expensive prospect.  It is easy for Germany and France to point to our attractive Corporation Tax Rate when any industry in their jurisdictions can ship goods on the back of a truck anywhere across Europe, quite a distinct business and geographical advantage. 
I have long been a strong proponent of the European project and still remain commited to Ireland’s future therein, but we need to argue our case with confidence and conviction.
So if anyone starts to talk about a bailout, please politely interject and let them know that it is not a bailout but a Sub-Prime Loan.


Eugene is a partner at Quintas and he heads up our large audit division.


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