German chancellor Angela Merkel is facing political pressure in Berlin to demand fiscal concessions from Ireland in exchange for granting extra time to repay crisis loans.

A new troika report has recommended extending maximum average maturities by seven years as an "important catalyst for the full restoration of market access" for Ireland and Portugal.

The report, seen by The Irish Times , warns of a "potentially challenging" situation ahead for Ireland "if market conditions become more adverse again" and, after presenting five options, proposes a seven-year maximum average maturity extension on loans as "the best compromise" to ease a return to markets.

A source in the German opposition party SPD said yesterday that, given these recent developments, it "couldn't be ruled out" that attention in a Bundestag debate on the issues would turn again to Ireland's corporate tax rate.

European finance ministers asked the EU-ECB-IMF troika and the European Financial Stability Facility (EFSF) to examine options for revising loan terms with a view to reducing Irish and Portuguese refinancing terms in the next 10-15 years.

'Well manageable'
Finance ministers meeting informally in Dublin this weekend will discuss the resulting report, which describes Ireland's looming borrowing requirements as "demanding . . . but well manageable".

No binding decision is expected on the report at the Dublin meeting, though political agreement would mark another step in an incremental process to improve Ireland’s financial position ahead of a planned return to markets later this year.

Ireland faces continued challenges, the report’s authors add, citing non-performing loans as a “key concern” to financial markets, fearing additional burdens for the sovereign should a capital shortfall arise.

On the other hand, extending loans to Ireland by an average of seven years could boost the country’s reputation with the influential Moody’s ratings agency. It told the report’s authors that a maturity extension might prompt it to reconsider its current Ba1 rating for Ireland – a status that has put off some potential investors.

While cautiously optimistic about Ireland’s planned programme exit later this year, the report raises concerns about “limited and opportunistic” market access for Portugal a year ahead of its own planned programme exit.

“Given the current volatility in the markets, quick implementation is recommended to maximise benefits in shielding Ireland and Portugal from possible contagion effects,” the report urges.

Formal agreement
After the informal Dublin talks, ministers are expected to reach formal agreement deal on extending the repayment periods in April or May.

Berlin has yet to show its hand on the report’s proposal but have already reminded EU partners that any substantial change to an EU-ECB-IMF programme require a Bundestag vote. However, opposition lawmakers in Berlin who have seen the report plan to make their Bundestag support dependent on Portugal and Ireland adopting measures to improve their own fiscal base.

The SPD complains that the Merkel administration has put the EU financial transaction tax (FTT) on the political back-burner. The Merkel administration agreed to push the FTT in exchange for continued opposition backing of rescue measures in Bundestag votes.

With an eye on the September general election, the SPD has been anxious to present to voters its FTT demands as a way of forcing financial institutions help cover the cost of future crises.

Dr Merkel has not needed opposition support in previous votes on euro rescue programmes. Each successive crisis vote, however, has seen a slow but steady rise in backbench rebels. “We back the basic idea in the report of extended loan maturities,” said an SPD official. “But, as we work towards a banking union, countries that benefit from programmes should, we think, be making a (financial) contribution of their own.”