November 29, 2010 / 12:13 PM / 9 years ago

UPDATE 2-Greece gets repayment extension to 2021 -finmin

* Greece says gets extension on paying back loans

* Fixed interest rate rises in return

* Euro zone parliaments must approve extension

(Adds quotes, details)

By Lefteris Papadimas

ATHENS, Nov 29 (Reuters) - Greece will have until 2021 to repay its 110 billion euro ($145.7 billion) EU/IMF bailout loan, making it easier to return to bond markets, the country’s finance minister said on Monday.

Policymakers hope the move will help dilute fears the overborrowed country will restructure its debt after the three-year EU/IMF funding ends. An easier-to-service repayment plan can give the economy more time to return to growth.

But getting more breathing space to service its debt mountain and repay the bailout will cost Athens a higher fixed interest rate of about 5.8 percent versus 5.5 percent, Finance Minister George Papaconstantinou told reporters.

“The repayment, which was now until 2015, will go to 2021 ... we have a grace period of four years and a repayment period of seven years,” Papaconstantinou said.

“The decision is very important, it opens the way to return to markets earlier than expected.”

According to the bailout plan, Greece does not have to return to markets before 2012, but the government has said it wants to start issuing bonds as early as next year.

Analysts were worried by a big jump in borrowing costs when the bailout expires. Under initial repayment schedules, the country’s borrowing needs would have ballooned to above 70 billion euros a year in 2014-15 from around 55 billion euros per year in 2011-2013.

EU sources said an informal deal to extend the repayment was reached at a meeting of euro zone finance ministers on Ireland on Sunday and that this will be detailed and formally agreed at the next Eurogroup and Ecofin councils on Dec. 6-7. Parliaments of euro zone countries must also approve the decision. “With yesterday’s step there will be a normalisation of a tough repayment period,” Papaconstantinou said. “The decision has been taken to have an equal treatment with Ireland and send a message to markets.”

Ireland became on Sunday the second euro zone country to be granted a bailout this year. [ID:nLDE6AS08D]

Papaconstantinou said this would not affect Greece’s fiscal consolidation plan, which analysts warned must be rigorously adhered to.

“The repayment extension will give Greece more breathing space, it may facilitate its return to markets — it’s easier to go out and borrow 50 billion instead of 80 billion euros,” said Alpha Bank economist Michael Massourakis.

“But all this rests on the condition that the fiscal programme to shore up its public finances is strictly implemented,” he said.

Greece’s slumping economy is making it harder for the government to generate revenue and shrink the budget hole as fast as previously projected.

This year’s budget gap will come down to 9.6 percent of GDP instead of the 7.8 percent Athens was targeting, according to the latest EU Commission forecasts. (Additional reporting by George Georgiopoulos in Athens and Julien Toyer in Brussels; Writing by Ingrid Melander and George Georgiopoulos, editing by Mike Peacock and Catherine Evans)

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