EU prepares to ease return to markets for Ireland, Portugal

Tue Jan 22, 2013 9:10am EST

Related Topics

* Ireland, Portugal request more time to pay back loans

* ECB's bond purchase programme could be used to help both countries

* EU finance ministers to discuss the issue in March

By Jan Strupczewski

BRUSSELS, Jan 22 (Reuters) - European officials are examining ways they can lower the financial burden on Ireland and Portugal to help them return to international bond markets later this year, including giving them longer to pay back existing loans.

The European Commission is drawing up options for both countries to see how investor confidence can best be strengthened and improve conditions for Dublin and Lisbon, which have been shut out of markets for two years.

One option could involve a precautionary credit line from the euro zone bailout fund combined with the European Central Bank buying bonds on the secondary market, the commissioner for economic affairs, Olli Rehn, told a news conference.

ECB bond purchases, known as Outright Monetary Transactions, or OMT, are only available to countries that are already selling longer-term bonds, such as 10-year paper, on the market - a condition neither country has yet met, although Ireland has plans to launch a 9-year bond soon.

Dublin and Lisbon also want to extend the maturities of the emergency loans they got from two euro zone rescue funds, the EFSF and the EFSM, to smooth out the burden of big bond repayments in 2016 and 2021 in the case of Portugal and 2016 and 2022 in the case of Ireland.

"Both Ireland and Portugal have made a request towards an extension of maturities and in our view we should discuss both the EFSM and the EFSF loans in this context," Rehn said.

"From the Commission point of view, I can say that our standpoint is in principle favourable for this."

EU finance ministers are likely to discuss the issue again at a meeting in early March, he said.

"It is in the very fundamental interests of not only the two countries but of the whole European Union that Ireland and Portugal will successfully return to market funding," he said.

SAVINGS IN BILLIONS

EFSM loans to Portugal, which by the end of 2012 totalled 22.1 billion euros out of the promised 26 billion, range from 5 to 30 years in maturity. The EFSF has so far lent 18.2 billion euros to Portugal out of the promised 26 billion euros, with an average maturity of 13.5 years.

In the case of Ireland, the EFSF has lent it 12 billion euros so far out of the promised 17.7 billion and the average loan maturity is almost 10 years. The EFSM has lent it 21.7 billion so far and the maturities range from 5 to 30 years.

Rehn would not quantify how much money either country could save through such an extension of maturities, but Irish Finance Minister Michael Noonan said it could produce significant savings for Ireland.

"We are talking about savings of a certain amount of billions," he told reporters.

Ireland got a three-year bailout from the EU and the International Monetary Fund in November 2010 as it wrestled with the largest budget deficit in the euro zone and struggled to draw a line under a costly bank rescue.

Its smooth return to markets would send a powerful signal that the euro zone is putting the worst of a financial crisis behind it. Ireland has already successfully tapped markets several times in recent weeks, but it is not yet ready for a sustained return, especially with longer-maturity debt.

Portugal was forced to ask for a three-year bailout in May 2011 as investors lost confidence in its debt because of the country's low growth and high borrowing.

Lisbon has financing assured until early-2014, but is expected to seek market access already this year.

The extension of the EFSM loans for both countries would have to be voted through by a majority of EU countries while the EFSF loans require unanimous approval from all 17 euro zone governments that are shareholders in the EFSF. (Additional reporting by John O'Donnell; Reporting By Jan Strupczewski; editing by Luke Baker)

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