14/09/2011
By Matt Ritchie
The European Commission is expected to adopt proposals improving the financial terms for loans provided to Ireland and Portugal under the European Financial Stabilisation Mechanism (EFSM).
The commission proposes to align the EFSM loan terms and conditions to those of the long standing Balance of Payment Facility.
Under the arrangements, the countries should pay lending rates equal to the funding costs of the EFSM, reducing the current margins of 292.5 basis points for Ireland and of 215 basis points for Portugal to zero. The reduction in margin will apply to all instalments, that is, to both future and already disbursed tranches.
Furthermore, the maturity of individual future tranches to Ireland and Portugal would be extended from the current maximum of 15 years to up to 30 years. As a result the average maturity of the loans to Ireland and Portugal from EFSM would go up from the current 7.5 years to up to 12.5 years.
Announcing the proposals, the commission said the terms would provide substantial cash savings for the countries, and bring additional benefits such as enhanced sustainability and improved liquidity outlooks.
“Moreover, indirect confidence effects through the enhanced credibility of programme implementation should result in improved borrowing conditions for the sovereign as well as the private sector.”
The proposals have been adopted by the European Commission, and are expected to be approved by the council in the coming weeks.
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