European Union officials are considering extending euro zone bailout loans to Ireland and Greece to 30 years in a bid to draw a line under the bloc's debt crisis, two euro zone sources said today.
The sources said European Central Bank governing council member Axel Weber, head of Germany's influential Bundesbank, had suggested stretching out the maturities from three years for Greece and seven for Ireland as part of a comprehensive package to overcome the crisis.
The idea surfaced in intensive talks among euro zone ministers, central bankers and officials on the sidelines of the World Economic Forum in Davos this week, the sources said.
"There are all sorts of ideas. I don't know how much weight this one carries. But of course it's not unheard of. Britain and some other countries only paid off some World War One bonds just recently," a senior euro zone source said.
Debt-laden Greece was the first country to receive a €110 billion EU/IMF bailout last May, and Ireland was granted €80 billion in emergency loans in December due to the huge cost of rescuing its shattered banking sector.
Euro zone leaders agreed in principle last month to extend the maturity of the Greek loans to the same duration as the Irish package.
EU officials say they are also considering reducing the interest rates on the euro zone portion of the loans, which carried a 300 basis point surcharge intended to deter moral hazard and punish what Germans call "debt sinners".
However, economists and some politicians in Greece and Ireland have said the punitive rates could contribute to making the assisted countries' debts unsustainable, requiring them to achieve nominal growth rates of nearly six percent just to stabilise the debt level.
Greece's bailout loans will represent about one-third of its total debt in 2013. A very long maturity at a lower interest rate could help it avoid having to restructure its debt to the private sector, much of which is held by French and German banks.
Reuters