At the January meeting of EU finance ministers in Brussels, both Dublin and Lisbon made a formal request: they’d also like more time to pay off their bailout loans. According to an analysis prepared for EU finance ministry officials a few weeks ago, though, the prospect is not as straight forward as it may seem.
The main argument against an extension – aside from the complex legal knots that would have to be untied – is the message it would send to the markets. Since both Portugal and Ireland have had some successes in recent months putting their toes back into the bond market waters, a full-scale, long-term extension might signal that investors’ newfound confidence is misplaced.
The biggest hurdle for an extension to Dublin and Lisbon appears to be the fact that both Ireland’s €67.5 billion bailout and Portugal’s €78 billion package were agreed under the EU’s formal rescue system, created after Greece’s collapse.
Of all those sources, it is the Greek bilateral loans – known as the Greek Loan Facility– that have been the easiest to adjust, since it just takes a legislative act in individual creditor countries. Those loans have been extended repeatedly, and their rates lowered so much that they’re now almost at the cost of borrowing.
But neither Ireland nor Portugal has the equivalent of the Greek Loan Facility, since bilateral loans were no longer needed once the eurozone’s formal rescue system was set up. Both of their bailouts come in equal parts from the IMF, EFSF and the now almost-defunct European Financial Stability Mechanism, a €60 billion pot of money backed by the EU’s own budget.
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