Sunday 17 December 2017

Bailout repayment extension mooted for Ireland, Portugal

IRELAND could be given more time to repay the bailout loans from the European Union.

Eurozone governments are discussing ways to help Ireland and Portugal return to the capital markets swiftly and have voiced a preference for delaying the repayment of bailout loans by the two states, Reuters reported last night.

Sources quoted from a 15-page discussion paper from the European Commission and the European Stability Mechanism (ESM) that was debated last week by deputy finance ministers from the eurozone.

Finance ministers from the so-called Eurogroup may discuss the matter at their next meeting in Brussels on Monday.

"They are favouring an extension of maturities of the EFSF and EFSM loans in order to avoid bottlenecks in paying back (the loans)," one of the sources with knowledge of the document told Reuters, speaking on condition of anonymity.

Ireland has received €67.5bn in its international bailout, while Portugal got €79.5bn.

Both countries were taken off financial markets and are undergoing tough structural reform programmes in return for the aid. Ireland's programme will expire this year, Portugal's next year.

A timely full return to financial markets would be a success for the eurozone, seeking to showcase that their bailouts had worked in a crisis that has sent unemployment rocketing in some countries and has led to an election standoff in Italy.

But Ireland and Portugal have asked eurozone finance ministers to help them stay off the programmes once they expire. The Government here also hopes Europe's new ESM rescue fund will take stakes in its almost fully state-owned banking sector off its hands next year once it is permitted to do so.

Under the preferred option, Ireland and Portugal would be allowed to backload their loan repayments, but remain within the timeframe of their existing overall schedule.

That would imply no substantial change to the aid agreements, and therefore would not require Bundestag approval, one of the sources said.

Another source said Germany was blocking a deal over concerns it would need to get approval from the Bundestag's budget committee or plenary.

Credit line

The second-best option would allow both recipient countries to delay paying back the loans beyond that schedule, by 2.5 years, five years or more than five years, though that would be even more likely to require Bundestag approval.

Were Ireland's EFSM/EFSF loans to be extended in 2015 and 2016, the amount of Irish debt maturing in those years would fall to €5.6bn from €10.6bn currently and €12.1bn from €16.3bn respectively.

A third option may be to provide both countries with a precautionary credit line through the ESM, a condition for tapping the European Central Bank's Outright Monetary Transactions (OMT) programme.

Portugal and Ireland have begun returning to debt markets and Finance Minister Michael Noonan said last week he planned to apply for the OMT plan – but not just yet.

The ECB announced the OMT last September to counter investor fears of a eurozone break-up but it has yet to deploy it, with some policymakers preferring to keep it under wraps.

Irish Independent

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