European official says bailout extension needed for IrelandFriday 12 April 2013 15.18
A senior official in the European Commission has warned that Ireland needs an extension of its bailout repayment deadline to offset the negative fallout from the Cyprus bailout affair.
The official has said that the Cyprus bailout and the inconclusive Italian election results had both pushed up borrowing costs "significantly" for Ireland.
The letter to EU and euro zone finance ministers came on the eve of today's informal meeting in Dublin.
The official warned that the "bail-in" of uninsured depositors in the Cyprus bailout "could have negative consequences on the confidence of depositors in Portugal and Ireland."
One of the most senior officials in the European Commission's economic division, Thomas Wieser, points out in the letter to EU finance ministers that Ireland and Portugal are "still highly vulnerable" to developments in other euro zone countries, namely Cyprus and Italy.
For that reason it was "paramount" that finance ministers give a "strong signal" of support to Ireland and Portugal by agreeing to an extension of the deadline by which both countries are required to repay bailout loans.
Such a move could help "ring-fence" the two countries from turmoil associated with the Cyprus bailout, it says.
Any delay in a "concrete decision" could disappoint the markets and offset the efforts of Ireland and Portugal to regain market confidence, the letter concludes.
The letter also points out that Ireland's debt repayments in the coming years "are large compared to the past and the market situation can potentially be challenging if market conditions in the future [became] more adverse again…"
The correspondence confirms that the Troika and the European Financial Stability Facility (EFSF) have recommended a maturity extension of seven years. It also confirms that the Government had initially sought an average maturity extension of 15 years.
However the choice of seven years would limit the liabilities of those member states who have guaranteed the bailout loans to Ireland and Portugal, Mr Wieser writes.
He argues that the seven year extension would support Ireland and Portugal's return to full market financing and would be positively viewed by ratings agencies.
It would also increase the probability that no further EU financing would be needed after the two countries emerge from their respective bailouts.
Ireland and Portugal would therefore be able to issue bonds which would not "compete" with the redemption of bonds issued by the EFSF and the moneys loaned from the EU.