Thursday 25 May 2017

Greece may get 3.5pc rate on loans - Irish cut possible

Independent.ie reporters

Greece could be given more time to pay back loans from Europe and a 3.5pc interest rate on future borrowings leading market sources to suggest a better deal for Ireland could be on the cards.

New European terms for Greece were revealed in a leaked document obtained by news agency Reuters ahead of the Brussels summit where a new plan to save Greece and the euro is being hammered out.



But market sources said this could be good news for Ireland in the future with an additional €45bn in funding yet to be drawn down from the EU/IMF bailout package.

"Of course this would not apply to the €22.3bn already drawn down on rates of about 5.8pc," said one market source.

It is not yet known whether better terms for other countries would include new terns and conditions.

The changes planned for Greece are understood to be part of a second bailout for the country which has about €350bn in debts.

However, the biggest challenge for eurozone leaders at the summit will be how to avoid the contagion of the Greek debt crisis spreading to other countries like Spain and Italy.

It is also understood the draft plan could include a selective default on Greek debt but this is something that could prompt ratings agencies to set about a new round of downgrades on the debt of weaker European countries, including ourselves.

Taoiseach Enda Kenny has called on eurozone leaders meeting in Brussels to make decisions that can restore certainty to the markets and take the pressure off countries under joint EU/IMF bailout plans.

He told reporters ahead of the talks in Brussels today that Ireland was looking for increased "flexibility" for the bloc's rescue fund, which would allow it to lend to ailing countries at lower rates and over the longer term, making bailout loans more affordable.

"I'm hoping for decisions that will bring certainty and decisiveness to the stability of the euro," he said.

"Europe has come together here to make decisions that will put an end to this contagion, an end to uncertainty and we would hope that the start of that process can begin today."

German chancellor Angela Merkel was upbeat on the way into talks, saying that a second bailout for Greece could be inked and that the summit was a "further important step" in solving the overall debt crisis.

However, the involvement of private bondholders in a second Greek rescue is the issue that could still thwart a deal.

Dutch prime minister Mark Rutte reiterated his insistence that banks and insurers should share the cost of the bailout, while Eurogroup head and Luxembourg's premier Jean-Claude Juncker said there was still a possibility the move could cause ratings agencies to declare Greece in default.

"You can never exclude such a possibility, but everything should be done to avoid it," he said.

Leaders are considering a number of options to help Greece manage its titanic debt burden, including lending it money to buy back its sovereign bonds from investors, asking creditors to swap their existing debt for bonds with longer maturities (a variation on a German plan) and a French-inspired bond rollover would mean bondholders reinvesting in Greek sovereign debt once their holdings mature.

What seems to be off the table is a plan to tax banks with Greek sovereign exposures, which would have avoided a default rating but which was hugely unpopular with lenders.

Mr Juncker said he didn't think there would be agreement on a tax.

Eurozone markets remained nervous this morning.

Investors are concerned the summit will not go far enough to save the euro from ruin even if a Greek deal is agreed.

Meanwhile, Finance Minister Michael Noonan said that Ireland prefers a system of Irish borrowings being guaranteed by the EFSF rather than the EU issuing euro bonds, which is still a possibility.

He said this would allow us to borrow money more cheaply and potentially return to the debt markets next year.

Mr Noonan said that Ireland was a Northern European country and was different to Greece.

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