Portugal reaches deal on EU and IMF bail-out

zootroid

Portugal's caretaker prime minister Jose Socrates has announced that he has reached agreement on a bail-out from the EU and the International Monetary Fund.

He said the three-year loan was a "good agreement".

No figure was given for the value of the loan, although it is reported to be about 78bn euros ($116bn; £70bn).

Officials from the European Commission, European Central Bank and IMF have been working on a deal for three weeks.

In a televised statement, Mr Socrates said that Portugal would be given more time to reach its budget deficit targets than had previously been expected.

Mr Socrates resigned as prime minister after failing to get austerity measures through parliament. There will be a general election on 5 June.

The deal has to be endorsed by the main opposition parties.

Portugal was the third eurozone country to have to ask for a bail-out, after Greece and Ireland.

http://www.bbc.co.uk/news/business-13275470

It will be interesting to see what rate of interest they must pay.

I have heard that the rate for any bailout is fixed at 5.8%, so just curious to see. I doubt it will be higher, and if it turns out to be lower, then surely it will just strengthen our case for a lower rate?

sollar

They are claiming to have got a better deal than we got. The interest rate is to be set in 2 weeks. So maybe we might get an improvement then too.

RichardAnd

sollar wrote: »

They are claiming to have got a better deal than we got. The interest rate is to be set in 2 weeks. So maybe we might get an improvement then too.

I'm not so sure. I don't think we're going to get any improvement untill the magic number (12.5) is raised.

Amhran Nua

RichardAnd wrote: »

I don't think we're going to get any improvement untill the magic number (12.5) is raised.

Because the corporate tax rate was responsible for causing the economic problems in the country. :rolleyes: Thuggery from the Europeans.

RichardAnd

Amhran Nua wrote: »

Because the corporate tax rate was responsible for causing the economic problems in the country. :rolleyes: Thuggery from the Europeans.

The issue of corporate tax isn't going to go away and, in my opinion, the whole thing has become too hot for the europeans to back down. It's regrettable that we have so little to offer other than low tax but we don't.

Amhran Nua

RichardAnd wrote: »

The issue of corporate tax isn't going to go away and, in my opinion, the whole thing has become too hot for the europeans to back down. It's regrettable that we have so little to offer other than low tax but we don't.

The Europeans only stand to lose face. We stand to lose a decent chunk of our already crippled economy. I'm fairly sure who will blink first.

RichardAnd

Amhran Nua wrote: »

The Europeans only stand to lose face. We stand to lose a decent chunk of our already crippled economy. I'm fairly sure who will blink first.

Yes, you're right, I'm not arguing the importance of corporate tax, not in the least. Unfortunately, I don't think the europeans give a dam because, as has become very clear (though I always believed this), the EU is anything but a happy family.

sarumite

Amhran Nua wrote: »

The Europeans only stand to lose face. We stand to lose a decent chunk of our already crippled economy. I'm fairly sure who will blink first.

I think they concerned about losing face to their electorate and not us. I know in Sweden there was talk about why give Ireland money when our taxes are much lower than in Sweden.

Amhran Nua

sarumite wrote: »

I think they concerned about losing face to their electorate and not us. I know in Sweden there was talk about why give Ireland money when our taxes are much lower than in Sweden.

It's not a gift, it's a loan with a punitive interest rate, and the Swedish might not have to pay so many taxes on their €4000 a month average wages if they weren't maintaining a fleet of almost two hundred modern fighter bombers, a half dozen stealth corvettes, a couple of hundred patrol boats, five submarines, and fully sixty seven battalions (eight mechanised) with three regiments of armour, I mean who are they afraid will attack them, yeti or something.

The point being of course that they are going to lose face when the corporate tax rate stays the same, because any Irish politician that came home with an increase on the cards would have signed his own political death warrant and that of his party, which is a bit more severe than a mild lesson in the meaning of sovereignty.

/rant

sarumite

Amhran Nua wrote: »

It's not a gift, it's a loan with a punitive interest rate, and the Swedish might not have to pay so many taxes on their €4000 a month average wages if they weren't maintaining a fleet of almost two hundred modern fighter bombers, I mean who are they afraid will attack them, yeti or something.

The point being of course that they are going to lose face when the corporate tax rate stays the same, because any Irish politician that came home with an increase on the cards would have signed his own political death warrant and that of his party, which is a bit more severe than a mild lesson in the meaning of sovereignty.

/rant

Yes, but like I said high taxes

Average Net salary Ireland:2,025 € / 2,733 $, monthly
Average Net salary Sweden: 2,155 € / 2,910 $, monthly

(both from wiki)

Now when you consider the cost of living in Sweden is considerably higher (I don't have a source for this except to say I have spent the last two years living in Sweden having moved from Dublin) I feel confident saying that 2,025 goes further in IReland than 2,155 will get you in Sweden.

Anyway, the point being the Swedishpoliticians have to face an electorate that wonder why they are giving a loan at below market rates to Ireland when our taxes are low. Rightly or wrongly, but that is what Swedish politicians have to face. They may realise that their electotrate have it all wrong, but if they do then they are struggling to convince them of it.

Amhran Nua

sarumite wrote: »

Yes, but like I said high taxes

Average Net salary Ireland:2,025 € / 2,733 $, monthly
Average Net salary Sweden: 2,155 € / 2,910 $, monthly

So what? If they dropped a few tens of thousands of soldiers/armoured regiments and about a hundred and seventy of their warplanes, they might not have to pay such high taxes. We aren't talking about programmes for social betterment here, we're talking about tens of billions being dropped on largely worthless armed forces.

sarumite wrote: »

Anyway, the point being the Swedishpoliticians have to face an electorate that wonder why they are giving a loan at below market rates to Ireland

Market rates don't matter, they are still making a keen profit off the deal.

sarumite wrote: »

when our taxes are low.

Our taxes are not low. Lower than theirs perhaps, but then again we aren't trying to prove our appendages are larger than everyone else's with overblown military budgets. And that's just Sweden. You should see what Germany is packing.

sarumite wrote: »

Rightly or wrongly, but that is what Swedish politicians have to face. They may realise that their electotrate have it all wrong, but if they do then they are struggling to convince them of it.

My understanding is that it is mostly the French and Germans pushing for a reduction in CT rates, but how and ever, the stakes are a lot higher for us than for any of the European countries lending money. Therefore in the absence of them using their extremely expensive military might to invade the country, the CT rate will not change.

sarumite

Amhran Nua wrote: »

So what? If they dropped a few tens of thousands of soldiers/armoured regiments and about a hundred and seventy of their warplanes, they might not have to pay such high taxes. We aren't talking about programmes for social betterment here, we're talking about tens of billions being dropped on largely worthless armed forces.

I agree

Market rates don't matter, they are still making a keen profit off the deal.

I disagree. You wouldn't sell someting at below market rates even if you were going to make a profit. Of course market rates matter, to say anything else is BS.

Our taxes are not low. Lower than theirs perhaps, but then again we aren't trying to prove our appendages are larger than everyone else's with overblown military budgets. And that's just Sweden. You should see what Germany is packing.

Our CT is, that's what they are saying should be increased

My understanding is that it is mostly the French and Germans pushing for a reduction in CT rates, but how and ever, the stakes are a lot higher for us than for any of the European countries lending money. Therefore in the absence of them using their extremely expensive military might to invade the country, the CT rate will not change.

I hope so, sadly its one of the few things we have left going for us.

Amhran Nua

sarumite wrote: »

I disagree. You wouldn't sell someting at below market rates even if you were going to make a profit. Of course market rates matter, to say anything else is BS.

They aren't borrowing from the markets at Irish rates, so yes, they still make a nice profit. If they cut a couple of percentage points off the interest, they would still make a profit.

sarumite wrote: »

Our CT is, that's what they are saying should be increased

This is why I called it European thuggery, the CTR had nothing to do with causing the problems, and will probably be the key to us being able to repay their loan. Trying to force an increase is plain and simple appendage waving, which will damage every man, woman and child in this nation.

You'd think after two world wars they'd have learned.

sarumite

Amhran Nua wrote: »

This is why I called it European thuggery, the CTR had nothing to do with causing the problems, and will probably be the key to us being able to repay their loan. Trying to force an increase is plain and simple appendage waving, which will damage every man, woman and child in this nation.

You'd think after two world wars they'd have learned.

ITs politics. ITs hyperbole to use words like "force an increase" when we are the one going out looking for a decrease in the interest rate.

Amhran Nua

sarumite wrote: »

ITs politics. ITs hyperbole to use words like "force an increase" when we are the one going out looking for a decrease in the interest rate.

I have a litte experience in the world of politics. And no, it's not hyperbole to compare the two, one leads to decreased profits on their part, the other causes massive damage to our economy.

eoinbn

zootroid wrote: »

http://www.bbc.co.uk/news/business-13275470

It will be interesting to see what rate of interest they must pay.

I have heard that the rate for any bailout is fixed at 5.8%, so just curious to see. I doubt it will be higher, and if it turns out to be lower, then surely it will just strengthen our case for a lower rate?

The rate isn't fixed at 5.8%. I believe that Greece had a rate of 5.2%, which has been recently reduced to 4.2%. Also isn't the interest rate of 5.8% a combo of the ECB/EU and IMF loans, with the IMF loan been something like 4% and ECB/EU 6.4%?
So the interest rate certainly isn't fixed at 5.8% and probably depends on the length of the loans, and from whom the main lender is- the IMF or EU.

View

eoinbn wrote: »

The rate isn't fixed at 5.8%. I believe that Greece had a rate of 5.2%, which has been recently reduced to 4.2%. Also isn't the interest rate of 5.8% a combo of the ECB/EU and IMF loans, with the IMF loan been something like 4% and ECB/EU 6.4%?
So the interest rate certainly isn't fixed at 5.8% and probably depends on the length of the loans, and from whom the main lender is- the IMF or EU.

That's more or less it.

Contrary to the impression of many posters here, the money loaned to us isn't just sitting around in the bottom drawers of the Ministers of Finance of the other EU member states (Most of them are actually also borrowing to fund their states). Instead, the monies have to be raised on the international bond market through the relevant funds issuing debt.

The rate needed to raise that money for those funds is the market rate for debt at the time of issuance. It is determined by a number of factors including the perceived risk of the fund and the state being lent to (e.g. Ireland) sticking with the plan agreed. Thus, if we give the markets the impression we are a bunch of nutters, the markets will charge the funds more interest to take on the risk of loaning money (which they know will go to us). As we are the net recipients of those borrowed funds that means we end up costing ourselves more in interest repayments due to that higher risk perception of us being a bunch of nutters.

After that, each fund applies an "administration fee" to cover the cost and associated risk to them of loaning the money on to us. The fee for the EFSM and EFSF were fixed well in advance of the November agreement - back in May last year if I recall correctly. The fee for the funds is apparently EFSF < EFSM < IMF. The cost of borrowing for the funds though is IMF < EFSM < EFSF as the funds are different (IMF is regarded as being better/less risky than many sovereign states; EFSF is highest risk as it is a private Luxembourgish company (of which the Eurozone member states - including Ireland - are shareholders)).

Lastly, as you rightly point out the loan period varies for the different funds - the IMF is short-term (i.e. they want the repayments back quick), whereas the EFSM/EFSF are medium term. Hence, also, the differing interest rates due to differing "risk profiles" of the length of the loans.

Amhran Nua

View wrote: »

It is determined by a number of factors including the perceived risk of the fund and the state being lent to (e.g. Ireland) sticking with the plan agreed.

I thought sovereign bond rates were pretty much blanket, have you any evidence to the contrary? Not being adversarial here, I'm genuinely curious.

View wrote: »

Lastly, as you rightly point out the loan period varies for the different funds - the IMF is short-term (i.e. they want the repayments back quick), whereas the EFSM/EFSF are medium term. Hence, also, the differing interest rates due to differing "risk profiles" of the length of the loans.

Funny, I thought the shorter the loan period, the higher the interest rate.

View

Amhran Nua wrote: »

I thought sovereign bond rates were pretty much blanket, have you any evidence to the contrary? Not being adversarial here, I'm genuinely curious.

I am not sure what you mean by "sovereign bond rates were pretty much blanket" - if you mean that they are the same for each state, that clearly isn't the case as it varies from state to state (e.g. Germany is (always?) lower than France or the UK - and all three are less than Ireland at the moment); it can also vary within a state (e.g. German-speaking Swiss cantons are usually lower than French speaking ones)!

Amhran Nua wrote: »

Funny, I thought the shorter the loan period, the higher the interest rate.

That can happen but it is a rarer event. Usually longer = higher as there is more risk of interest rates hikes adversely effecting the value of the payout from the bond. Not to mention a lender is forgoing the use of the money for a longer period of time, hence usually needs to be paid more to do so.

As a rough picture, here is a graph with the yield on US Treasuries.

Disclaimer: The posts reflects my best understanding of the issue which may not be 100% correct. I am open to correction on all this.

Amhran Nua

View wrote: »

I am not sure what you mean by "sovereign bond rates were pretty much blanket" - if you mean that they are the same for each state, that clearly isn't the case as it varies from state to state (e.g. Germany is (always?) lower than France or the UK - and all three are less than Ireland at the moment); it can also vary within a state (e.g. German-speaking Swiss cantons are usually lower than French speaking ones)!

What I mean is the purpose of the fundraising is not questioned. Merely the ability of the state to repay it.

View wrote: »

That can happen but it is a rarer event. Usually longer = higher as there is more risk of interest rates hikes adversely effecting the value of the payout from the bond.

We aren't talking about mortgages here. And even if we were, longer would still mean lower rates.