BAILOUT DEAL:EU ECONOMICS commissioner Olli Rehn raised the prospect of longer maturities on Ireland's bailout loans as he argued against "overburdening" the State with excessive credit conditions.
Mr Rehn’s remarks, days ahead of a crucial European summit, suggest debate on a relative easing of Ireland’s rescue plan is advancing. Although he is known to support lowering the interest rate on the Irish loans, Germany wants concessions from Dublin in return for any relaxation of the EU-IMF deal.
“I can see that there is a case to reduce the interest rates paid by Greece and Ireland,” the commissioner said.
“In that context, it is important that we also look at loan maturities so that we can go beyond the hump of 2014 and 2015 and that also contributes to debt sustainability . . . The essential thing is to ensure debt sustainability of Greece and Ireland. We have to avoid the moral hazard at any cost. That is done through the rigorous conditionality of the EU-IMF programmes, rather than high level of interest rates.”
The bailout loans secured by the outgoing Government carry an average maturity of 7½ years. The extent to which the loan terms might be extended was not immediately clear last night.
Incoming taoiseach Enda Kenny travels to Brussels on Friday for a summit of euro zone leaders. While they are due to discuss lowering the interest rate on Irish loans in the context of reforms to the euro zone bailout fund, there is concern that the effort may fall short of market expectations.
Mr Kenny faces a separate challenge in Brussels as the European Commission prepares to introduce legislation next week to develop a common consolidated corporate tax base in the EU.
Moody’s intensified pressure on Greece yesterday with a radical downgrade of its debt. Analysts said the move increased the likelihood that the country would have to restructure its debt.
Mr Rehn’s remarks follow the elimination of a proposal for the euro zone bailout fund to carry out discounted buybacks of sovereign debt, a measure which could have been used to ease some of the pressure on Dublin. With such a manoeuvre no longer on the table, high-level sources believe EU authorities have been pursuing alternative ways of relieving the strain on Ireland and Greece.
Mr Rehn’s comments also come amid a new round of stringent stress tests on Ireland’s banks, which are due to conclude at the end of the month. There is concern in Dublin and in European capitals that those tests may suggest that a €25 billion contingency fund is too small.
In Helsinki last weekend, Mr Kenny raised the possibility of longer loan maturities when saying ways must be found to cut the cost of Ireland’s bank bailout if losses were not imposed on senior bondholders.
The European Commission has welcomed the programme for government. Even though some parts of the package breach the conditions set out in the EU-IMF deal, the commission did not say yesterday whether it was concerned.
“We welcome the incoming government’s strong commitment to the key economic policy goals and measures involved in the EU-IMF financial assistance programme, in particular for what concerns the agreed fiscal consolidation path,” said a spokeswoman for Mr Rehn. “We will obviously be studying the draft programme in closer detail and starting discussions also with Ireland in these and other aspects.”
