Ireland and Portugal want 15-year extension of EU loans

BRUSSELS Mon Mar 4, 2013 9:09pm GMT

Austria's Finance Minister Maria Fekter (L) and Ireland's Finance Minister Michael Noonan attend a euro zone finance ministers meeting at the European Union Council in Brussels March 4, 2013. REUTERS/Eric Vidal

Austria's Finance Minister Maria Fekter (L) and Ireland's Finance Minister Michael Noonan attend a euro zone finance ministers meeting at the European Union Council in Brussels March 4, 2013.

Credit: Reuters/Eric Vidal

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BRUSSELS (Reuters) - Ireland and Portugal want up to 15 more years to pay back loans to the EU to ease their return to financial markets, but sources said on Monday that while an extension is likely it may not be as long as they want.

The head of the Eurogroup meeting of finance ministers said late on Monday he would ask non-euro European Union colleagues on Tuesday if they were willing to adjust the conditions of the loans the EU made to Ireland and Portugal.

"If there was to be an agreement tomorrow, we would ask the troika (of European Central Bank, European Commission and International Monetary Fund) to come forward with a proposal for the best possible option for each of these of the two countries," Jeroen Dijsselbloem said.

EU Commissioner Olli Rehn said he hoped the ministers could make a decision at the next Eurogroup and EU finance ministers meeting in Dublin in April.

EU governments are considering ways to help the two states, both bailout recipients, return to raising funds on the capital markets. Loans to both states came from the two rescue funds EFSM and EFSF.

This could be done by limiting the borrowing needed to cover big debt repayments in 2016 and 2021 for Portugal and 2016 and 2022 in Ireland.

A full return to markets by Dublin and Lisbon would be a success for the euro zone, which wants to show that bailout reforms can work, even though the sovereign debt crisis sent unemployment rocketing and led to an election standoff in Italy.

Approval of non-euro zone countries for the extension of the loan maturity for Portugal and Ireland is needed because both countries received loans from the European Financial Stability Mechanism (EFSM), a 60 billion-euro fund which raised money on the market against the security of the budget of the whole EU.

An extension of the EFSM loans will therefore have to be approved by all EU countries. Extending loans granted by the euro zone temporary bailout fund, the European Financial Stability Facility (EFSF), will require unanimous approval from all 17 euro zone governments that are shareholders in the EFSF.

Irish Finance Minister Michael Noonan told reporters on Monday he was aware his demand may not be met fully.

"Our lowest maturities are five years and they extend out to the high 20s, so what we are asking is an extension of 15 years on average, but we will see how it goes," Noonan said.

"I don't think there is a disposition to extend that long," he added, speaking ahead of the ministers' meeting in Brussels.

A senior European Union source said Portugal was demanding the same extension, taking its cue from what was granted to Greece as part of its package in November.

GENERALLY IN FAVOUR

Ministers and EU officials have said they are generally in favour of extending maturities on the loans.

"Portugal and Ireland have such well-performing programmes that there is a positive predisposition to helping them," one senior euro zone official said.

But with Ireland's programme expiring only at the end of this year and Portugal's next year, it might be too early to decide now, the official said.

"I do believe we are going in the direction of genuine maturity extensions, maybe not exorbitant, so that markets don't wonder," the official added.

An options paper by the European Commission and the European Financial Stability Fund - the rescue fund under which both countries received their bailouts - presented five options on how to help Portugal and Ireland.

Back loading repayment of the loans within their existing schedules - or possibly also extending the maturities of the loans beyond the current repayment schedules - are the preferred options, according to the paper seen by Reuters.

"It is down to Germany now," one EU official said. "It all depends on how well Germany can make the case that none of these options are a substantial change to the programme. If not, they will need Bundestag approval."

With just seven months until federal elections, Germany's government wants to avoid having to get parliamentary approval for the change to the Irish and Portuguese loans.

That rules out giving the two countries a precautionary credit line under the European Stability Mechanism (ESM) - a precondition for tapping the European Central Bank's bond-buying programme - or extending the programmes without giving new funds.

It also rules out a new programme altogether, another proposal made in the paper.

Ireland has begun to gradually return to capital markets and plans to launch a new 10-year benchmark bond before resuming regular bond auctions later this year.

The country raised a quarter of its long-term debt target for the year in January when it sold more than 2.5 billion euros (2.15 billion pounds) of five-year debt.

Portugal dipped back in the market in January with a 5-year bond for the first time since its 2011 bailout. It is expected to try a 10-year bond later in the year.

(Reporting by Jan Strupczewski and Annika Breidthardt; Editing by Andrew Roche)

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