Bailout loans to Ireland and Portugal should be extended by seven years to aid each country’s return to the market, the nations’ international creditors said.
The so-called troika and the European Financial Stability Facility made the recommendation in a joint report before a meeting of European Union finance ministers in Dublin on April 12-13, when further measures to help Ireland and Portugal are to be discussed.
The troika and the EFSF “would advocate to extend the maximum average maturity by seven years as it appears to be the best compromise accommodating the constraints and preferences of debtors and creditors,” said the report, which was distributed to German lawmakers and seen by Bloomberg News. “Given the current volatility in the markets, quick implementation is recommended to maximize benefits in shielding Ireland and Portugal from possible contagion effects.”
EU finance ministers agreed last month to ask for recommendations on the “best possible option” for helping Ireland and Portugal regain full market access as they near the end of their rescue programs. Euro-area finance ministers will try to reach an agreement on extending rescue-loan maturities for Ireland and Portugal when they meet in Dublin, Dutch Finance Minister Jeroen Dijsselbloem said.
April or May
If no agreement can be reached in Dublin, “it will be done a month later,” when finance ministers convene in Brussels, Dijsselbloem, who chairs the meetings, said in The Hague.
Irish Finance Minister Michael Noonan has said that while an extension of bailout loans from European authorities will be discussed at the informal meeting in Dublin, no decisions are expected. Any maturity extensions would require approval of the German parliament and a decision in Dublin would be too early, Germany’s Finance Ministry said in an e-mailed statement today.
“Resolving the issue now allows the authorities to plan and communicate issuance requirements to the market with more certainty,” the troika said in the report. Extending the average maximum maturity of the European bailout loans to the two countries by seven years was one of five options considered by EFSF and the bailout partners, the European Commission, the International Monetary Fund and the European Central Bank.
Ireland aims to exit its three-year bailout program at the end of this year, while Portugal’s rescue program ends in May 2014. While both countries have returned to bond markets since entering their rescue programs, Portugal’s “market access can only be considered as limited and opportunistic,” according to the report.
Non-performing loans at Irish banks remain a “key concern to market participants” given the risk that a capital shortfall would generate additional liabilities for the sovereign. Ireland injected or pledged about 64 billion ($84 billion) euros to rescue its banks and requested a bailout in 2010 when mounting bad loans at the lenders overwhelmed the state’s ability to cope alone.
The report also cited potential advantages from extending the loans for Ireland’s credit rating from Moody’s Investors Service. Moody’s is the only one of the three big ratings companies that has Ireland on a non-investment rating, Ba1, which constrains some investors from buying Irish debt.
“Moody’s has stated that an extension of the maturities of the EFSF/EFSM loans would be a strongly supporting factor for revising their current stance, an important component of durable market access,” the report said.