Troika close to agreement to ease pain of €40bn bailout
They are concentrating on extending the maturities of the more than €40bn lent by the EU/IMF to at least 30 years together with a possible reduction in the interest rate.
European economics commissioner Olli Rehn confirmed that work was continuing on these issues with the ECB and the IMF for both Ireland and Portugal.
“They are on the technical agenda, work is in progress and will continue at the forthcoming eurogroup,” he said.
The initial loans were for just four and five years and these are not expected to be extended out, while the most recent loan was for much longer. Finance Minister Michael Noonan is on record as saving such a move could “save billions of euro”.
Other issues that will be dealt with in the exit paper which was requested by both Ireland and Portugal is the go-ahead to draw down a precautionary line of cheap credit from the EU’s rescue fund, the ESM, should it be needed. There will also be a reference to the ECB’s OMT programme that would buy Irish Government bonds once the country is back on the markets, borrowing sizeable sums over at least nine years.
However, both for the credit line and the OMT, a set of conditions would be imposed and it is understood these are also being negotiated and are quite sensitive.
Commissioner Rehn at the end of yesterday’s EU finance ministers meeting added that last week’s decision to reorganise the promissory notes was very important, while Mr Noonan, who chaired the meeting, said he was very pleased with credit agency S&P’s upgrade of the country to “stable outlook” from negative.
He also said that the interest rates being attracted by the new Government bonds that replaced the promissory notes were lower than expected at below 3%, depending on the maturity. “It was quite a successful initiative,” he added.
Both men refused to comment on the ongoing public debate about exchange rates. France considers that the euro is too strong at the moment. ECB president Mario Draghi appeared to be trying to talk down the currency at his governing council meeting in Frankfurt last week.
Commissioner Rehn said they would not target exchange rates and referred to Mr Draghi’s comments stating that they have an impact on growth and inflation. A December European Commission study showed that a strong appreciation of the euro would impact more on deficit countries of southern Europe as their exports were more price sensitive. This could negatively affect the rebalancing of the eurozone, he added.
Targeting rates would be against the G20 agreement and the EU will remind finance ministers at their G7 meeting in Moscow this week. “We expect this will be reflected in the statement from the G20”, he added.
