Dublin, 15/04/2013 (Agence Europe) - The average maturity of the loans to Ireland and Portugal from the eurozone bailout funds will be extended by seven years.
The Ecofin Council took this decision on Friday 12 April 2013 for loans from the European Financial Stabilisation Mechanism (EFSM), after the Eurogroup decided to do the same for loans from the European Financial Stability Fund (EFSF) (see EUROPE 10826).
By spreading out the repayment of loans that were initially due by 2010, the two countries will find it easier to plan their cash flow and return to the money markets unaided later this year (for Ireland) and in a year's time (for Portugal). Irish Finance Minister Michael Noonan said it was a very important stage in restoring Ireland's capacity to get finance from the markets and the aim was to return the country to a normal state. Since the financial crisis sparked by collapse of Irish banks, the country has received €18 billion from the EFSF and €22.5 billion from the EFSM.
After being given some breathing space when the budget conditions for the bailout of Anglo Irish Bank were eased, this is Ireland's second concession from its international lenders to help it return to the money markets unaided. It will take an active part in the Eurogroup talks on direct bank recapitalisation from the European Stability Mechanism in order to try and get the rules to be retroactive (see related article). Getting some cash injected directly into Allied Irish Bank and Bank of Ireland by the ESM would cut Ireland's debt. Hoping for a positive outcome from the talks, Noonan warned that the process would take time and he didn't think the ESM would start directly bailing out banks in January 2014.
Ireland's ability to emerge from the bailout at the end of this year is not doubted. Following the successful emission of long-term debt, it now has the confidence of the markets because the yield on ten-year bonds is now below 4% (well below the rate demanded for Spain and Italy). Despite a deficit of 7.7% of GDP in 2013, virtually unchanged on 2012, the European Commission expects growth in Ireland of 1.1% this year (although the eurozone as a whole is close to recession) and expects unemployment to stabilise at under 15%. The austerity measures are eating away at living standards in the country and several thousand people demonstrated near the finance ministers' meeting at Dublin Castle on Saturday to protest against the introduction of a special property tax that critics say will hurt the middle classes rather than big land-owners.
Portugal. Despite the eurozone's desire to consider Portugal as a good performer, the situation is not as clear-cut as in Ireland. It is stuck in recession (the economy shrinking by 3.2% of GDP in 2012 and 1.9% in 2013, according to the European Commission) and is finding it difficult to cut its budget deficit (6.3% of GDP in 2012). The lenders have agreed for the second time to change the trajectory for improving Portugal's finances, setting a new target of cutting the deficit to 5.5% this year. Portugal has not yet issued any long-term bonds because the yield demanded for ten-year bonds is above 6.6%. Extending the repayment deadlines will help it get a better credit rating and thus encourage investors to buy long-term sovereign debt.
To meet the concerns of Germany and the Netherlands, the ministers say that Portugal must still respect its budget commitments although the country's constitutional court ruled that various measures planned in the 2013 budget are illegal, measures totalling €1.3 billion. Over the next few days, the Portuguese government is due to unveil new measures to fill the gap, measures that will be assessed by the country's lenders and endorsed over the next few weeks. (MB/transl.fl)