UPDATE 1-EU seeks to help Ireland and Portugal prove bailout success

Tue Mar 5, 2013 4:59pm GMT

* EU officials anxious for success story in euro zone crisis

* Experts from international lenders to make proposals

* EU ministers likely to decide in April on how to help

* Any loan extension may still need parliamentary approvals

By Jan Strupczewski and Annika Breidthardt

BRUSSELS, March 5 (Reuters) - European Union finance ministers sought advice on Tuesday on how to help Ireland and Portugal demonstrate the success of their painful bailout programmes by returning to international markets to raise funds.

Ireland took a three-year European Union and International Monetary Fund financing programme in late 2010 and Portugal followed in the second quarter of 2011 in exchange for budget cuts, tax rises and other economic changes.

Both intend to return to normal market financing this year and next, but face a refinancing peak in 2016 and then again in 2021 for Portugal and 2022 for Ireland.

Both have asked for the emergency loans to be extended in maturity by an average of 15 years, to make it easier for them to convince financial markets they can manage their official repayments as well as servicing debt they raise from investors.

A full return to ordinary market funding would give the euro zone a chance to claim that bailout reforms can work.

Given rocketing unemployment in Spain, Portugal and Italy, and an Italian election this month that has trapped the bloc's biggest sovereign debtor in political stalemate, euro zone leaders are leaning towards helping.

"We discussed whether EU Finance Ministers would be ready in principle to consider an adjustment of the maturities on the EFSF and EFSM (bailout) loans to Ireland and Portugal in order to smooth the debt redemption profiles of both countries," the ministers said in a statement.

They also agreed to ask the 'troika' of experts from the European Central Bank, the European Commission and the International Monetary Fund "to come forward with a proposal for their best possible option for each of these two countries for EFSF and EFSM loans."

They were referring to the temporary euro zone bailout fund, the European Financial Stability Facility (EFSF), and a fund backed by the budgets of all 27 EU members - the European Financial Stability Mechanism (EFSM).

EU Economic and Monetary Affairs Commissioner Olli Rehn said on Monday the ministers could make a decision on extending the loans at the next Eurogroup and EU finance ministers' meeting in Dublin in April.

SUCCESS STORY

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 said. 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.

But granting an extension, depending on whether it is seen as a major or only a small change to the programmes, may require approval by parliaments, or their committees, in Germany, the Netherlands, Finland, Estonia and Slovakia.

"If it is a non-substantial change to the programme, then we must inform the budget committee and give it the opportunity to make a statement. If it is substantial, then we need a prior agreement of the Bundestag," German Finnace Minister Wolfgang Schaeuble said.

"... It could well be that it is enough, and that is our position, that you (help) with the peaks with a delay of individual instalments. It could also be that you would have to change the average maturity, that would likely be a substantial change. And as that is not even up for agreement yet, we're not going to make up our minds yet," he told reporters.

An options paper by the European Commission and the EFSF 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.

Dublin and Lisbon could also at some point apply for a credit line from the permanent bailout fund, the European Stability Mechanism (ESM), which would also pave the way for the ECB to start buying their bonds on the secondary market.

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 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.