Government to seek ‘maximum leeway’ on loans

The Government has indicated it will seek “maximum leeway” to extend the maturity of Ireland’s bailout loans in a two-day meeting of European finance ministers which begins tomorrow in Dublin.

Amid signs that the EU-International Monetary Fund troika is backing a seven-year extension, a senior euro zone source said such a move was but one of five on the table. The view expressed privately in Government circles is that it is still all to play for in the discussions.

The campaign to prolong the loans from euro zone countries and the European Commission is part of the effort to smooth Ireland’s exit from the rescue programme later this year.

The basic aim is to reduce loan repayments in the near term, reducing the burden on the Government to refinance existing debt and providing an opportunity to raise new debt from private investors at lower rates.

"I'm very optimistic. This is something that's been on the table formally for the last two months and has been unofficially under discussion for a number of months before that. So I think it's coming towards conclusion," said Minister of State for Europe Lucinda Creighton.

“Obviously we’ll be looking for the maximum leeway possible for Ireland.” However, she said it was difficult to predict whether additional time to repay would give the Government flexibility in the budget.

The loans carry an average maturity of 12.5 years and the ministers reached an agreement in principle to extend duration as far back as January.

Although there is some wariness in Germany and other countries, the euro zone source pointed to increasing support for the Irish position.

“The political climate is such that I have not heard of any violent disagreement or deep-rooted disagreement with the idea,” said the source, deeply involved in preparations for the talks this weekend. “The troika has looked at five different possibilities and seven years was one of the five but I would not be betting great sums out of my pocket whether it will be seven.”

The source said there will be no legally binding decision at the meeting. However, economics commissioner Olli Rehn said significant moves should be made in Dublin.

An adjustment of the maturities on loans to Ireland and Portugal is “a core part of our exercise to support the exit of the two countries from the programmes and to return to private market funding”, he said.

“That is why it is important that we take decisions in Dublin in order to support a suitable exit from their programmes.”

Contribution of 20%
In a related development, it emerged yesterday that euro- zone governments may have to contribute up to 20 per cent of the cost of directly recapitalising banks through the European Stability Mechanism fund.

Proposals to be examined in Dublin include an investment by the beneficiary government as an integral part of the scheme, which remains deeply contentious.

A final agreement on how the ESM will directly recapitalise banks is not expected until June. While the question of compensating governments for investments in "legacy assets" in rescued banks will be discussed tomorrow, official sources say AIB and Bank of Ireland do not fall into this category.

The two banks were already recapitalised by the Government and would instead be subject to “retroactive” direct recapitalisation by the ESM if agreement is reached.

A decision on retroactive recapitalisation will not be made until the ESM direct recapitalisation instrument is finalised by the end of June, a European official said.