Portugal and Ireland ask eurozone to extend rescue loan dates
Portugal and Ireland have received the support of eurozone finance ministers to extend the life of bailout loans to help them to borrow normally, Irish Finance Minister Michael Noonan said on Tuesday.
Meanwhile credit rating agency Standard & Poor’s said on Tuesday that it was maintaining its notation for Portugal at speculative investment grade mainly because of uncertainty about the outlook for growth.
When Greece’s rescue programme was revised last year it had the repayment dates of its loans pushed back, with eurozone officials saying at the time that Ireland and Portugal could also benefit.
Portuguese Finance Minister Vitor Gaspar made such a proposal at the meeting of eurozone finance ministers on Monday, which Ireland supported, Noonan said.
“We had the approval of the 17” eurozone ministers, he said.
They were expected to raise the subject at meeting of all 27 EU finance ministers on Tuesday, and could formally receive the green light in March.
The request comes as Ireland and Portugal strive to return to the medium- and long-term debt markets this year.
Gaspar was quoted by Portuguese media as saying the country had shown it was carrying out bailout conditions and that it was “ready to launch issues on the primary bond market.”
However he said the return to the sovereign debt market “is more difficult to the extent that the country faces a concentration of very big (repayment) maturities in 2014, 2015 and 2016.”
Therefore it was important for Portugal “to be able to count on the support of our European partners so as to dilute and defer these dates over time.”
In May 2011, Portugal obtained bailout loans of 78 million euros ($104 million) from the European Union and the International Monetary Fund on condition that it apply a programme of radical reforms and budget rigour to correct public deficits and debt and to raise the performance of the economy.
Prime Minister Pedro Passos Coelho said on Friday that Portugal was at the point of overcoming its financial crisis.
His remarks followed success by Portugal last week with an issue of short-term debt bonds, after which the debt management agency said that if market conditions permitted, this year it would make its first issue of medium-term or long-term debt since the country was rescued.
But on Tuesday, S&P said that it was holding its notation for Portuguese long-term debt at “BB” and for short-term debt at “B” as announced a year ago and confirmed in August.
The agency said that the negative outlook, meaning that the agency could downgrade the notation further in the medium term, reflected risks arising from the weak outlook for growth.
The agency also noted that rulings due from the constitutional court on several measures in the budget for 2013 could compromise application of tough budget measures promised to creditors by the centre-right government.
The Portuguese President Anibal Cavaco Silva, and also the left-wing opposition, have asked the court to rule on the legality of some of the measures.
However, S&P acknowledged that borrowing conditions for Portugal had improved since the country requested a bailout in 2011, but said that confidence remained “fragile”.
Nevertheless in a sign of growing investor confidence the rate of return to investors on the country’s 10-year bonds fell on Tuesday under 6.0 percent for the first time since December 2010.
Ireland, which was forced into seeking a 85-billion-euro EU-IMF bailout in late 2010 after it bailed out its banks when a domestic property bubble burst, is also seeking to return to long-term debt market this year.
Noonan said a reduction of the interest rate on bailout loans, as Greece obtained, would also improve the sustainability of Ireland’s debt sustainable and increase the willingness of the market to lend to us at a lower interest rate.”
Noonan also declined to exclude the possibility Ireland would ask the European Central Bank to buy its bonds under its as-yet untested OMT programme.
The ECB unveiled last year the OMT programme, which is for eurozone countries implementing a bailout programme and borrowing on long-term debt markets.
EU Economy Commissioner Olli Rehn said the idea shouldn’t be excluded of combining precautionary aid programmes, another as-yet untested eurozone rescue tool, with ECB bond purchases.