Ireland crossed a further hurdle in its bid to secure a lengthening of its bailout loan maturities yesterday when all 27 EU member states agreed to back the proposal in principle.
This follows the agreement of euro zone finance ministers to accept the proposal on Monday.
The troika has now been tasked with examining technical options around the proposed deal, with conclusions expected by mid-April.
In an indication of EU political support for the request, EU economics and financial affairs commissioner Olli Rehn said he believed that national parliaments would support a deal if required.
“I believe that parliaments of the EU member states can be convinced on the merits of the assessment of the longer maturities for Ireland, because it is very much in the European interest, and the interest of each member state, that both Ireland and Portugal will successfully exit the programme and regain market funding,” he said.
As with the use of the ESM fund to directly recapitalise banks, some member states, such as Germany, the Netherlands and Finland may have to ratify any adjustment to Ireland and Portugal’s debt profiles. The requirement for national endorsement, either by a parliament or committee, is likely to depend on the nature and structure of the deal, which is now under scrutiny.
While Ireland had sought a 15-year extension on its early EFSF and EFSM loans, the loan extension is likely to be much lower, with sources suggesting an average extension of five years or more. Five separate proposals are now being considered by the troika, which include a proposal to back-load repayment of loans within existing schedules.
Range of options
“There are a range of options still in the paperwork provided by the commission,” said Minister for Finance Michael Noonan. “Option one wouldn’t be worth an awful lot to Ireland. On the other hand, option five would be worth a lot to Ireland, so it’s in that space we are negotiating.”
While the final proposal is expected to be agreed by finance ministers at their informal meeting in Dublin next month, the implementation of the deal could be some months later.
Mr Noonan indicated that member states could decide to couple a parliamentary decision on the Irish and Portuguese debt reprofiling proposal with a vote on a bailout deal for Cyprus, which is expected to be agreed by the end of this month.
Direct recapitalisation
In parallel, Dublin is maintaining momentum on its request to seek ESM direct recapitalisation for AIB and Bank of Ireland, a deal that would involve a reduction in Ireland’s debt pile rather than a debt maturity reprofiling.
Euro zone officials are currently drafting proposals on how ESM direct recapitalisation will work, with the issue of retroactivity under consideration. Despite resistance to the concept from some member states, it is understood that the issue of retroactive direct recapitalisation, which applies to Ireland, formed part of the discussion proposal circulated to euro zone finance ministers this week. A final decision on the framework for the ESM’s direct recapitalisation model is expected by June.
While adjusting the maturities of Ireland’s bailout loans is seen as a key way of supporting Ireland’s return to full market access by easing the country’s funding requirements in the years directly following the bailout, some EU sources say a similar case cannot be made for demands to secure ESM direct recapitalisation for AIB and Bank of Ireland.
“Seeking retrospective recapitalisation would send out the wrong signals Ireland – that it is unable to pay this debt,” one EU source said.
