Irish hopes for major cost-cutting on bailout programme founder

Promises to cut the cost of the country’s bailout funds will not be as generous as originally hoped according to the latest proposed deal.

Ireland had hoped that repayment of the €67bn loans would be pushed out for up to 30 years from the current average of 12-and-a-half, allowing the country time to recover and to put its money into growth.

However what is on the table now as the country prepares to exit the bailout is that just one amount of €3.6bn due to be repaid in 2016 would be extended, as has already been agreed for a sum of €1.2bn due in 2015. The agreement is likely to roll over both with an average maturity of 15 years and at an whatever interest rate prevails when the new money is raised by the EFSM — the EU’s fund that provided party of Ireland’s bailout.

The two latest loan tranches to Ireland have longer — 25 and 29-year — maturities while two more are repayable in eight and 11 years and would not change under the current proposal.

The average maturity for the country’s loans is 12-and-a-half years and it is expected this would be extended to fifteen years. This compares to the 30-year average loan Greece got at the end of last year, and 14-and-a-half year average for Portugal.

Eurozone finance ministers including Michael Noonan are expected to discuss the issue at their meeting in Brussels on Monday but it is unclear if they will come to a final decision.

Some argue that they need to ensure that any extension of the loans does not look like a rescheduling, especially at a time when Ireland is planning to return to the market for its borrowings.

However others argue that it would be unfair to give better conditions to Ireland when they are effectively back in the markets, and give them better conditions than many of the other eurozone countries guaranteeing those loans.

Germany, with elections in September, does not want to bring any such payment issues before its parliament where it could become a contentious issue as politicians prepare for the polls.

The eurozone ministers will also discuss the rules for the EU’s rescue fund, the ESM, lending directly to banks rather than going through governments in an effort to separate the sovereign from financial institutions.

However, there is no good news on the horizon for Ireland here either as Germany, the Netherlands, and Finland are completely opposed to replacing money that has already been paid by the governments to banks — as in Ireland’s case where €32bn was put into the main banks. No firm decision is expected on the final set of rules until June.

Two other areas that could cushion Ireland’s return to the markets later this year is to have the ECB prepared to buy bonds on the market — known as the OMT programme announced a few months ago. There is also a cheap credit line from the ESM that could be available to the Government if it wanted — but both would be subject to the EU imposing fresh conditions on the country which is something the Government is wary of.

Eurozone ministers are expected to grapple with the problem of Cyprus, whose newly elected president is likely to apply for a bailout next week. However there is a dispute between the EU and the IMF over the conditions of providing funds to them, mainly because of questions over Cypriot banks laundering Russian money.

Their banks which were holding a lot of Greek bonds got into trouble after the haircut on the bonds was agreed last year.