New EC debt proposals 'will mean substantial savings' for Ireland

The European Commission has today adopted two proposals which suggest reduced interest rates and extended maturities for the EU loans granted to Ireland and Portugal.

In a statement, the EC said the proposals would mean "substantial cash savings" for Ireland and Portugal.

The loans are provided by the EU under the European Financial Stabilisation Mechanism (EFSM) as part of financial assistance packages to the two countries.

Today's proposals are separate from the rate reductions agreed on July 21 by eurozone governments on their contribution which comes from the European Financial Stability Facility (EFSF).

"The improved terms are expected to enhance liquidity and contribute to the sustainability of both countries in support of their strong economic and reform programmes," the statement from the EC said today.

The proposals are expected to be approved by the Council in the coming weeks.

In line with the July 21 agreement, similar conditions are expected to be adopted for the lending that the European Financial Stability Facility (EFSF) is providing to Ireland and Portugal.

"The maturity of individual future tranches to these countries will be extended from the current maximum of 15 years to up to 30 years. As a result the average maturity of the loans to these countries from EFSM would go up from the current 7.5 years to up to 12.5 years," the EC statement said.

The proposed zero-margin loans would save Ireland €700m per annum when the funds are fully drawn down.

Background information on the package:

Ireland receives, as part of the joint financial support package agreed in December 2010, loans from:

- The EU under the European Financial Stabilisation Mechanism (EFSM),

- The European Financial Stability Facility (EFSF),

- The International Monetary Fund (IMF)

as well as bilateral loans between countries. The agreed assistance amounts to €67.5bn over three years; EU (EFSM), EFSF (including bilateral loans) and the International Monetary Fund (IMF) are each contributing €22.5bn.

The EFSM loan to Ireland currently allows for a maximum average maturity of the overall facility of 7.5 years with individual disbursements having maturities between two and 15 years.

Under the EFSM, three disbursements have been made so far to Ireland: €5bn on January 12 this year, €3.4bn on March 24, and €3bn on May 31. The EFSF also disbursed €3.3bn to Ireland on February 1.