EUROPEAN Union (EU) finance ministers have agreed to grant Ireland and Portugal seven more years to pay their bailout loans, easing the burden on their economies and paving the way for a quicker return to sustainable growth.
In their attempts to make progress to stabilise the economy of the 17 nations sharing the euro currency, the ministers also approved a €10 billion (£8.5bn) rescue loan package to stop Cyprus from sliding into bankruptcy.
However, the rescue yesterday comes at a heavy price for the Mediterranean island. Cyprus, with an annual economic output of less than €18bn (£15.4bn), must itself contribute €13bn (£11bn) to turn its economy around, levied through inflicting losses on holders of large bank deposits, tax increases and privatisations.
However, there was only little progress made on the other plan EU officials have billed as vital in helping turn the tide in the bloc’s three-year-old debt crisis – the establishment of a full-fledged banking union.
The 17 ministers endorsed the legal framework for a central authority for Europe’s banks, which had been hammered out between government representatives and the European parliament last month. It is set to take effect next year.
On the fundamental question of setting up a joint bank resolution mechanism and enabling Europe’s bailout fund to directly recapitalise troubled banks, however, ministers reached no conclusion.
Olli Rehn, the EU’s most senior economic official, insisted that “the timeline for establishing a banking union should be as short as possible”.
“The banking union is not created and completed overnight, but we must have a clear perspective for the banking union, with a specific timeline,” he added.
Jeroen Dijsselbloem, who chairs the meetings of the Eurogroup of finance ministers, said he expected the bloc to reach agreement on the outstanding issues by June.
The decision to extend the loan repayment schedules for Ireland and Portugal proved uncontroversial and was expected to be backed by the finance ministers of all 27 EU ministers, who met yesterday in Dublin.
Ireland holds the six-month rotating presidency of the EU.
The loan repayment extensions are intended to ease financial pressure on the countries, helping them resume long-term bond sales when their bailout loans run dry.
Ireland’s loans run out later this year; Portugal’s in 2014.
The situation in Portugal was complicated last week when the country’s constitutional court struck down parts of the government’s austerity programme that was agreed to in return for an international €78bn (£66bn) bailout.
The government will unveil measures next week to meet its deficit reduction targets. Those measures will have to be assessed by the country’s so-called troika of creditors – the European Central Bank, the European Commission and the International Monetary Fund – to see whether they sufficiently plug the shortfalls.
In 2010, Ireland received a €67.5bn (£57.5bn) loan package after being sunk by having to bail out its banks, which had taken on risky bets that went wrong in the wake of the 2008-09 global financial crisis.
The rescue loan package for Cyprus still needs parliamentary approval in several eurozone member nations. Those votes are expected to be finalised by the end of the month, with the first loan disbursement planned in May, Mr Dijsselbloem said.