OLLI REHN, EU economic affairs commissioner, said he expects a reduction in the rate of interest Ireland is charged for the EU element of the joint bailout with the IMF to be agreed “shortly”.
He rejected arguments of a “moral hazard” (lack of incentive for guarding against risk where there is protection from consequences) in easing the terms of the bailout. The position of any national leader requiring a bailout for their country was not something “any leader would want”. Mr Rehn said he believed debt sustainability – whether or not a state could afford to manage its debt — was a more pertinent criteria than moral hazard.
“It is important that in defining the interest rate, debt sustainability is firmly taken into account and, therefore, the commission already some time ago proposed a reduction of the interest rate for Ireland in order to help Ireland overcome its debt burden in the same way as Greece or Portugal.”
The timeframe for agreement on a reduction of Ireland’s interest rate is understood to be the meeting of EU finance ministers which is due to be held on Monday and Tuesday of next week. “I would expect that this kind of agreement could be taken shortly,” he said.
At that meeting Mr Rehn will be asking EU states to formally endorse the terms of a €78 billion bailout package for Portugal. However, he said it was “premature” to speculate on a new bailout package for Greece as an EU/IMF progress report on the first year of the package had still to be fully assessed.
Meanwhile, senior figures in the European Central Bank (ECB) warned of dire consequences from any restructuring of Greek debt as Athens played for time in the face of expectation it will soon seek a second international bailout.
Although euro group chief Jean-Claude Juncker has already acknowledged that the country needs further aid, German finance minister Wolfgang Schäuble said no decisions will be taken until the completion of an ongoing EU/IMF “troika” review.
Euro zone finance ministers will take stock of Greece’s situation at their regular meeting next Monday, but officials said it was unlikely they would take any fresh initiative before their next meeting in June. “We have to see whether Greece is still on track and, therefore, any speculation as to the outcome of this assessment is premature. We’ll take the decision when we get there but we are aware, of course, of the concerns on financial markets,” Mr Schäuble said.
His French counterpart, Christine Lagarde, was a little more forthcoming on the likelihood of a new rescue plan, saying “we have been rescuing for a year and we will keep up”. With confidence in the existing Greek rescue all but lost, Athens denied reports it was already in talks about a €60 billion increase to its €110 billion rescue plan. Doubt about the willingness of leaders such as Dr Merkel to support a further rescue has led markets to speculate that Greece might seek to restructure its debt, code for default. While numerous senior Europeans have already ruled that out, the ECB stepped up its rhetoric yesterday against any such move.
Austrian ECB governing council member Ewald Nowotny said restructuring would intensify the financial crisis. And ECB executive board member Lorenzo Bini Smaghi said it was naive to believe restructuring could be achieved in an “orderly” way.
“Default or debt restructuring is a dramatic economic and social event for the country which experiences it – I would call it political ‘suicide’ – which leads many into poverty,” Mr Bini Smaghi said.
Despite denying talks on a new rescue, Greece has already raised the prospect of extending its ad hoc rescue plan with an application for help from the European Financial Stability Facility bailout fund.
Sources familiar with the thinking among ministers said Greece would have to execute stringent new policy measures in return for increased external aid.
At the meeting of ministers on Monday a successor to ECB chief Jean-Claude Trichet, who retires in October, will be appointed.
Mr Schäuble is known to support Italian central bank chief Mario Draghi, who is in prime position. However, it remains unclear whether chancellor Angela Merkel will support his candidacy.
Dr Merkel, who is kingmaker in the process, is expected to make a decision before Monday, enabling Mr Schäuble to propose a single candidate on behalf of Berlin.
Mr Juncker will then bring the name of the preferred candidate – and any credible rival – to a summit of EU leaders next month.