Brussels, 10/04/2013 (Agence Europe) - Conditional political decisions may be taken in Dublin on 12 and 13 April 2013 to extend the maturity of the loans to Ireland and Portugal and on aspects of direct bank recapitalisation by the European Stability Mechanism (ESM).
Ireland and Portugal have asked for a 15-year extension to their loans that were due to expire by 2020 and were granted as part of a financial bailout package from the EFSF and the EFSM funds. Extending the repayment deadlines will help the countries in their bid to return to the money markets unaided - Ireland is further down this track than Portugal. A European diplomat said that five different options, one being an extension by seven years, were on the table. Other options are for shorter or longer extensions. The shorter options would not do much to improve the two countries' finances while the longer options would expose the lending countries to a risk because they are responsible for ensuring the good health of the EU budget. In a letter this newsletter has seen, Council of Ministers' experts recommend a seven-year extension.
The diplomat said a formal decision would not be taken in Dublin but felt it was likely that the eurozone finance ministers would agree on a “more political” decision in principle about the loans from the EFSF and the EU27 ministers would follow suit for loans from the EFSM, saying he had not witnessed any strong disagreement with this. Any decision would depend on proper respect of the structural adjustment programme by the two countries. The diplomat said that Ireland's application of its programme was exemplary but the situation is not so clear-cut in Portugal now that the country's constitutional court has ruled illegal various measures in the planned 2013 budget, measures totalling €1.3 billion (see EUROPE 10823).
In Dublin, Portuguese finance minister Vitor Gaspar is due to outline to his counterparts the new measures the government is planning to take to fill the gap. The diplomat admitted that there was a “connection” between the new budget measures to be unveiled by the Portuguese government and extension of the maturity of loans to the country.
Bank recapitalisation. The Eurogroup will continue its work on how the planned direct bank recapitalisation from the European Stability Mechanism (ESM) will work. Partial political agreement might be reached on sharing the financial burden for legacy assets if bank supervision is shifted from national to EU level. Countries whose banks (or some of them) get aid from the ESM will have to bear some of the burden themselves. The European diplomat said that member states would always have to participate in bank recapitalisations, contributing between 10% and 20% themselves. The finance ministers will not discuss the upper limits on ESM bank bailouts and legal details, like whether direct bailouts come from the ESM directly or from a subsidiary set up for this purpose, or the retroactive nature of the new rules, rules that are expected to be finalised by July.
Cyprus. In Dublin, the ministers will discuss a draft Memorandum of Understanding setting out the conditions for financial aid for Cyprus and the structural adjustment programme the country will be required to introduce. Ministers are expected to agree in principle on the documents, paving the way for the countries that require endorsement of the deal by their own parliaments to arrange this. It is hoped that the documents can be finalised later this month so that the countries in question can endorse them early in May. The audit of implementation of anti-fraud legislation in Cyprus is due to be completed on Thursday 11 April.
Eurozone bank supervision mechanism. Over lunch on Friday, the EU27 finance ministers will discuss the plans to set up a banking union in the eurozone, starting with the introduction in the spring of 2014 of a eurozone bank supervision mechanism under the aegis of the ECB. On Wednesday, the member states discussed the four recent demands from Germany (see EUROPE 10817) on governance on the supervisory committee at the ECB and national parliaments' ability to verify decisions. The demands have generally been welcomed and the EP is taking a conciliatory line, but some delegations have doubts about the German request for a stronger legal basis for the supervision mechanism, which may require changes to the EU treaty.
Tax fraud. In light of the recent revelations of global tax fraud by prominent people, the Ecofin Council will discuss the question, probably on Saturday, said the Irish Presidency of the EU Council. Ministers will also discuss Luxembourg's statement and a letter from five member states in this connection (see related article). (MB/transl.fl)