Brussels, 06/05/2011 (Agence Europe) - The Eurogroup meeting of eurozone finance ministers on Monday 16 May will decide on the interest rate and maturity date for the loans to be granted to Portugal by the EU, explained a spokesperson for EU Economic and Monetary Affairs Commissioner Olli Rehn on Friday 6 May. The loans will require the introduction of a strict austerity package (see EUROPE 10372 and 10371), added the spokesman, explaining that a new calculation method for such loans had been decided upon in March.
In March, the eurozone summit decided to reduce the interest rates on EFSF loans in order to better ensure that the beneficiary countries be able to repay their loans. It was decided that the interest rate would be above the rate required to pay for the running of the EFSF, providing an appropriate margin to cover risk in line with the way the International Monetary Fund sets interest rates (see EUROPE 10335). The Portuguese interest rate will be calculated as follows - the market rate plus 2% for loans of up to three years, and the market rate plus 3% for loans of over three years. The same calculation would be used for the interest rate on any loans that might be granted by the European stability mechanism (ESM) from July 2013 onwards.
The eurozone leaders decided to reduce the interest rate on the loans to Greece from 5.2% to 4.2%, giving the country seven and a half years to pay the loans back, in return for an ambitious privatisation programme that aims to net €50 billion. The interest rate on Ireland's loans is 5.8% and it is currently negotiating a similar rate reduction, but Dublin is refusing to give in to France and Germany's demands that it increase its very low corporate tax rate (12.5%). Olli Rehn's spokesperson said that negotiations were underway and it was up to the member states how long the talks would last.
Unveiling the Portuguese aid package at a press conference in Lisbon on Thursday, the head of the IMF delegation, Poul Thomsen, said that Portugal would pay 3.25% on its three-year loans and 4.25% on loans of over three years.
The EU will provide two-thirds of the €78 billion worth of aid to Portugal, and the IMF the remaining third. The IMF cash will come from the two European bailout funds, the intergovernmental EFSF based in Luxembourg (that can mobilise up to €250 billion) and the European Community's EFSM, managed directly by the European Commission, which can lend up to €60 billion. On Thursday, the president of the European Central Bank, Jean-Claude Trichet, said that the EFSF and EFSM would provide half of the €52 billion to be provided by the EU. The EFSM provided €22.5bn of the €45bn aid package for Ireland, the EFSF €17.7bn and €5bn in total from the United Kingdom, Sweden and Denmark (see EUROPE 10266). (M.B./transl.fl)