Commission proposes better financial terms for EU loans to Ireland and Portugal

Scofflaw

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/602&format=HTML&aged=0&language=EN&guiLanguage=en

Two proposals were adopted by the European Commission today, suggesting reduced interest rate margins and extended maturities for loans granted by the European Union (EU) to Ireland and Portugal. The loans are provided by the EU under the European Financial Stabilisation Mechanism (EFSM) as part of financial assistance packages to the two countries. The improved terms are expected to enhance liquidity and contribute to the sustainability of both countries in support of their strong economic and reform programmes.

The proposals are expected to be approved by the Council in the coming weeks. In line with the 21 July 2011 conclusions of the Heads of State and Governments, similar conditions are expected to be adopted for the lending that the European Financial Stability Facility (EFSF) is providing to Ireland and Portugal.

The Commission proposes to align the EFSM loan terms and conditions to those of the long standing the Balance of Payment Facility. Both countries should pay lending rates equal to the funding costs of the EFSM, i.e. reducing the current margins of 292.5 bps for Ireland and of 215 bps for Portugal to zero. The reduction in margin will apply to all instalments, i.e. both to future and to already disbursed tranches.

Furthermore, the maturity of individual future tranches to these countries will be extended from the current maximum of 15 years to up to 30 years. As a result the average maturity of the loans to these countries from EFSM would go up from the current 7.5 years to up to 12.5 years.

In addition to the substantial cash savings for Ireland and Portugal, the new financial terms will bring benefits such as enhanced sustainability and improved liquidity outlooks. Moreover, indirect confidence effects through the enhanced credibility of programme implementation should result in improved borrowing conditions for the sovereign as well as the private sector.

Reduction of the margin to zero on all loans both future and already disbursed, extension of terms on future loans to 30 years. Applies to EFSM (€22.5bn), and expected to be followed by the EFSF (€17.5bn, €22.5bn if the bilaterals follow suit).

That's pretty large. Will work out the potential savings later.

cordially,
Scofflaw

woodoo

No mention of Greece. I wonder have the other plans for them. As in a default.

woodyg

€600 - €700 million a year reduction is the figure going about so with the change in the Summer it's about €1.5billion a year or there abouts.

Duke Leonal Felmet

woodyg wrote: »

€600 - €700 million a year reduction is the figure going about so with the change in the Summer it's about €1.5billion a year or there abouts.

Excellent. I wonder how long it will take for the obligitory Anglo/banker comment.

km79

So good news ??? Will the "markets " respond favourably

Scofflaw

km79 wrote: »

So good news ??? Will the "markets " respond favourably

In theory - if the market's concerns about Ireland revolve around our ability to service the debt we've accrued, then it should.

cordially,
Scofflaw

Zubeneschamali

So what's the difference between an EFSM with no interest rate penalty and a Eurobond?

In both cases, spendthrift countries like ourselves and the Portuguese are using Germany's credit rating to borrow money, right?

Scofflaw

Zubeneschamali wrote: »

So what's the difference between an EFSM with no interest rate penalty and a Eurobond?

In both cases, spendthrift countries like ourselves and the Portuguese are using Germany's credit rating to borrow money, right?

Pretty much. The disparity between the rates we could borrow at on our own behalf (8.6%) and using the AAA credit rating of the EFSM is now pretty large.

cordially,
Scofflaw

Sleepy

Scofflaw wrote: »

In theory - if the market's concerns about Ireland revolve around our ability to service the debt we've accrued, then it should.

cordially,
Scofflaw

Is that what the markets are worried about though?

I'd have thought it was the level of our current deficit that had spooked the markets.

Scofflaw

Sleepy wrote: »

Is that what the markets are worried about though?

I'd have thought it was the level of our current deficit that had spooked the markets.

That's been something of a debate, I think - to be honest, nobody can really say what the individual traders making up "the market" are really worried about - but interest payments will be a feature of our budget, and hence our deficit.

cordially,
Scofflaw

not yet

Just on six one news,the figure will be around 1.1 billion per year with the term extended out to 15 years.

Also the reduction will be applied to monies already drawn down. Curiously the IMF didn't reduce their part of the interest.

Scofflaw

not yet wrote: »

Just on six one news,the figure will be around 1.1 billion per year with the term extended out to 15 years.

Also the reduction will be applied to monies already drawn down. Curiously the IMF didn't reduce their part of the interest.

They can't - IMF interest rates are calculated by formula. There's no room for the IMF to change them without an across the board revamp of the IMF's rules.

cordially,
Scofflaw

WalterMitty

Trade union types will now be looking for a longer adjustment and even to borrow more at the low low rate of 2%! :rolleyes:

Stheno

For me the difference this will make is how it will contribute to reducing the deficit, 1b out of 20 is 5% of the savings we need.

Good loser

Fair play to those that were responsible for the concession.

What will the anti - Lisbon 'told you sos' make of it?

jimmycrackcorm

Good loser wrote: »

What will the anti - Lisbon 'told you sos' make of it?

Will that matter if Greece causes the Euro destruction?

Scofflaw

jimmycrackcorm wrote: »

What will the anti - Lisbon 'told you sos' make of it?

Will that matter if Greece causes the Euro destruction?

Red herrings, I suspect.

amused,
Scofflaw

FGR

Given the restructuring now compared to as it was what kind of ease will we see on annual repayments in this country?

Wasn't it originally calculated that there was no way that Ireland could possibly pay back what it owed...has this changed with the increased duration/lower interest rate and if so by how much?

I have a feeling that we'll be like Germany post WW1/WW2 and be paying back this debt for the next eighty years.

Scofflaw

ForegoneReality wrote: »

Given the restructuring now compared to as it was what kind of ease will we see on annual repayments in this country?

Wasn't it originally calculated that there was no way that Ireland could possibly pay back what it owed...has this changed with the increased duration/lower interest rate and if so by how much?

I have a feeling that we'll be like Germany post WW1/WW2 and be paying back this debt for the next eighty years.

Quite possibly "forever" in at least some senses - public debt is rarely paid off. It is, instead, 'rolled over' - new debt is acquired to pay off the old - so that what counts for a state isn't the size of the principal as such, but the cost of meeting the interest payments.

cordially,
Scofflaw

Debtocracy

Scofflaw wrote: »

Quite possibly "forever" in at least some senses - public debt is rarely paid off. It is, instead, 'rolled over' - new debt is acquired to pay off the old - so that what counts for a state isn't the size of the principal as such, but the cost of meeting the interest payments.

cordially,
Scofflaw

The principal is insignificant as long as there is a constant supply of credit. However, given that the monetary system naturally produces a regular boom-bust pattern with a major crisis every half century or so (due to extreme debt to money ratios), the system is too high variance to guarantee a constant credit supply. The days of limitless credit are coming to an end (exacerbated by increasing unemployment and peak resources) and so too is the Ponzi scheme that sustains government debt. All major Western governments will lose their AAA rating in the next decade as the crisis caused by debt saturation deepens.