Ireland confident on rate cut

DUBLIN Sun Mar 13, 2011 2:03pm EDT

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DUBLIN (Reuters) - Ireland expects Europe to cut the interest rate it is charging on some 40 billion euros ($55 billion) worth of loans at a summit at the end of this month and will also seek greater flexibility from Brussels on dealing with its banks.

In comments released by state broadcaster RTE on Sunday, Ireland's new prime minister said the results of stress tests on domestic lenders would bolster Dublin's case for a cut along the lines of the 100 basis point reduction won by fellow euro zone struggler Greece on Saturday.

"There were a number of elements that were not absolutely clear to me yet which we will have clear hopefully before the big meeting on the 24th and 25th of March, which will make our case very clear for a similar treatment," Enda Kenny said in comments recorded on Saturday night.

"It's not just the interest rate it is flexibility in other matters in relation to the banking structure that we need assistance on as well."

Ireland's new government, swept into power two weeks ago, believes the country's banks are placing an unsustainable burden on the state and wants Europe to give it more time to shrink the sector and more help meeting its capital requirements.

European leaders agreed on Saturday to cut the interest rate on loans to Greece and strengthen the region's bailout fund to try and defuse a year-long debt crisis.

Ireland, which agreed to an 85-billion-euro ($118.2 billion) joint EU/IMF rescue package late last year, did not get a similar reduction after Kenny refused to give in to pressure to raise the country's 12.5 percent rate of corporate tax, viewed as anti-competitive by higher tax European nations.

"We had a good Gallic spat," Kenny said of his disagreement with French President Nicolas Sarkozy during more than seven hours of discussions.

Mounting property losses at Ireland's banks triggered the country's financial meltdown and request for external assistance last year.

The central bank is conducting new stress tests on the lenders as part of the EU/IMF deal and the results are set to be published at the end of this month.

Investors expect the tests to show Irish banks, which have already swallowed over 46 billion euros of state capital, will need additional support due to rising mortgage arrears and a large increase in their cost of funding.

The EU/IMF deal has provided for 10 billion euros in additional capital, to come from Ireland's own resources, as well as a 25 billion euros "contingency fund" to cover future losses.

Some analysts have said the banks will need 5 billion to 10 billion euros in additional capital but the chairman of nationalized lender Anglo Irish Bank ANGIB.UL Alan Dukes spooked investors when he said last month that a clean banking core would require 50 billion euros in new capital.

The central bank Governor Patrick Honohan has dismissed Dukes' predictions but Justice Minister Alan Shatter said on Sunday there were concerns about what the stress tests would reveal.

"There is a concern as to what may be disclosed in the context of the stress testing as to what the banks may have so far concealed or indeed as to what information may have been available to the previous government that hasn't been revealed."

Shatter added that the possibility of imposing losses on some bondholders in Irish banks remained an option.

($1=.7193 Euro)

(Reporting by Carmel Crimmins; Editing by Louise Heavens)

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