EU asks how to smooth Ireland, Portugal market return

Tue Mar 5, 2013 7:48am EST

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* Experts from international lenders to come up with proposals

* EU ministers likely to decide in April how to help Ireland, Portugal return to market

By Jan Strupczewski

BRUSSELS, March 5 (Reuters) - European Union finance ministers asked international experts on Tuesday to suggest how best to ease the return of Ireland and Portugal to debt markets as they near the end of their programmes of emergency funding.

Ireland got a three-year European Union and International Monetary Fund financing programme in late 2010 and Portugal got the same in the second quarter of 2011 in exchange for a package of fiscal austerity and structural reforms.

Both intend to return to normal market financing this year and next, but face a refinancing peak in 2016 and then again in 2021 for Portugal and 2022 for Ireland. Both countries have asked for the emergency loans to be extended in maturity by an average of 15 years to help smooth out the repayment schedule.

The loans came from the temporary euro zone bailout fund, the European Financial Stability Facility (EFSF), and from a fund backed by the budgets of all 27 EU members - the European Financial Stability Mechanism (EFSM).

"We discussed whether EU Finance Ministers would be ready in principle to consider an adjustment of the maturities on the EFSF and EFSM loans to Ireland and Portugal in order to smooth the debt redemption profiles of both countries," the ministers said in a statement.

"We agreed to ask the Troika to come forward with a proposal for their best possible option for each of these two countries for EFSF and EFSM loans," the statement said.

The Troika are experts from the European Central Bank, the European Commission and the International Monetary Fund.

EU Economic and Monetary Affairs Commissioner Olli Rehn said on Monday the ministers could make a decision on extending the loans at the next Eurogroup and EU finance ministers meeting in Dublin in April.

SUCCESS STORY

A full return to markets by Dublin and Lisbon would be a success for the euro zone, which wants to show that bailout reforms can work, even though the sovereign debt crisis sent unemployment rocketing and led to an election standoff in Italy.

Irish Finance Minister Michael Noonan told reporters on Monday he was aware his demand may not be met fully.

"Our lowest maturities are five years and they extend out to the high 20s, so what we are asking is an extension of 15 years on average, but we will see how it goes," Noonan said.

"I don't think there is a disposition to extend that long," he said.

A senior European Union source said Portugal was demanding the same extension, taking its cue from what was granted to Greece as part of its package in November.

An options paper by the European Commission and the EFSF presented five options on how to help Portugal and Ireland.

Back loading repayment of the loans within their existing schedules - or possibly also extending the maturities of the loans beyond the current repayment schedules - are the preferred options, according to the paper seen by Reuters.

Dublin and Lisbon could also at some point apply for a credit line from the permanent bailout fund, the European Stability Mechanism (ESM), which would also pave the way for the ECB to start buying their bonds on the secondary market.

Ireland has begun to gradually return to capital markets and plans to launch a new 10-year benchmark bond before resuming regular bond auctions later this year.

The country raised a quarter of its long-term debt target for the year in January when it sold more than 2.5 billion euros of five-year debt.

Portugal dipped back in the market in January with a 5-year bond for the first time since its 2011 bailout. It is expected to try a 10-year bond later in the year.

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