It is likely to put pressure on the EU to further cut the loans to Ireland and Portugal, although there is not as much leeway to do so.
The reduction being discussed for Athens should save them about €370m in interest payments per year. This could be even more if the repayment period is lengthened out to 30 years, rather than the current 15.
It relates to the first loan to Athens of €52.9bn in May 2010 before the EU set up a rescue fund, and the money came from individual member states, including Ireland.
Up to March last year Greece paid 3% interest when it was cut to 1.5% — and Portugal and Ireland’s loans were also reduced at that time. The suggestion now is that this would be further reduced to 0.8% — the same as the European interbank Euribor for bank-to-bank lending — which is currently 0.2% for three months.
The reduction would bring the interest rate below what Ireland and the other countries under pressure had to pay on the open market at the time.
While Germany was initially afraid such a cut would be demanded by Ireland and Portugal also, it pointed out that the funds for both countries were raised on the open market by the EU’s rescue fund and passed on at close to the market rate.
Ireland pays an average of around 3.9% now for money the EFSF raised at rates between 1.25% to 3.37% depending on the length of the loan and the time it was raised. Last year it was cut from 5.9% saving the country an estimated €900m a year.
But the ministers will have to find more ways to cut the cost of Greek loans if it is to claim the debt — expected to reach 140% by 2020 — is sustainable. The IMF is adamant it will not agree to extend the date for sustainability — and it is supported by Germany.
This would also mean extending the date by two years, to 2014, for bringing its everyday budget deficit to around 3%, but more time means more money and it would mean another €32bn for Greece.
Sources suggest that the ministers will keep the current dates, but make it clear that funding will be available for longer than this.