Terms of Irish bailout deal changed

 

Ireland is to receive better terms on another tranche of the loans it is receiving as part of the IMF-EU rescue package.

Under proposals adopted by the European Commission today, reduced interest rate margins and extended loan maturities are to apply to funds provided by the EU under the European Financial Stabilisation Mechanism (EFSM) .

The EFSM is contributing around €22.5 billion to the €85 billion Irish bailout deal, with the IMF and  European Financial Stability Facility (EFSF) also providing around €22.5 billion each. The remainder of the bailout fund is provided mainly through bilateral agreements.

The changes, which will be applied retrospectively, are separate to the interest rate reduction achieved in July which related to the EFSF loans, though changes to the EFSM rates had also been expected.

The proposals, which are expected to be approved by the council in the coming weeks, also apply to Portugal.

Under the proposal, the current margin of 2.925 per cent which applies to Ireland will be reduced to zero, while the maximum payback timeframe will double from 15 to 30 years. 

In effect, this means that the EC will now only charge Ireland what it costs them to borrow the monies it uses to fund the loan. Both the EFSF and the EFSM, which have triple A ratings,  fund their loans by issuing debt instruments in the capital markets.

The changes will apply to already-dispersed tranches as well as future tranches.

A spokeswoman for the European Commission said that the new financial terms will bring enhanced sustainability and improved liquidity outlooks to Ireland. It will also generate indirect confidence effects through the enhanced credibility of programme implementation which should result in improved borrowing conditions for the sovereign as well as the private sector, the commission added.