EU may offer better terms on loans to Portugal, Ireland

The European Union (EU) may offer lower interest margins and longer maturity for loans granted to Ireland and Portugal, the European Commission disclosed Wednesday. According to the Commission, two proposals were adopted Wednesday suggesting lower interest rates and longer maturity for loans to the two nations. The loans are provided by the EU under the European Financial Stabilization Mechanism (EFSM) as part of financial assistance packages to the two countries. The Commission believes the improved terms may help enhance liquidity and contribute to the sustainability of both countries in support of their strong economic and reform programs. Similar conditions are expected to be adopted for the lending that the European Financial Stability Facility (EFSF) is providing to Ireland and Portugal, which is in line with July 21 summit conclusions. The Commission also proposes both countries should pay lending rates equal to the funding costs of the EFSM, thus reducing the current margins of 292.5 bps for Ireland and of 215 bps for Portugal to zero. The reduction in margin will apply to all instalments, i.e. both to future and to already disbursed tranches. Furthermore, the maturity of individual future tranches to these countries will be extended from the current maximum of 15 years to up to 30 years. As a result the average maturity of the loans to these countries from EFSM would go up from the current 7.5 years to up to 12.5 years. The Commission believes new financial terms will bring benefits such as enhanced sustainability and improved liquidity outlooks, apart from substantial cash savings for the two nations. What's more, the new terms may also help rebuild credibility of sovereignty bonds of those two nations in the market, the Commission believes. The proposals are expected to be approved by the Council in the coming weeks.