EU mulls lower rate plan for Greek debts

Executive arm considering reducing loan interest rates for Greece and Ireland amid fears over debt crisis.

Greek economy
Eurozone ministers ruled out restructing Greece’s debts at a meeting last week [EPA]

The European Union is considering lowering the interest rates of bailouts for Greece and Ireland, in an effort to avoid debt restructuring.

A spokesman for Olli Rehn, the EU Economic and Monetary Affairs Commissioner, said on Monday that the European Commission was in favour of a rate cut over debt restructuring, following talks over the Greek debt crisis.

The EU’s executive arm also said it hoped to see a decision on the rate charged to Ireland, which has a joint EU and International Monetary Fund (IMF) bailout.

The new Irish government’s bid for lower interest payments has so far been blocked by Germany and France, which want Dublin to drop its veto on harmonising the corporate tax base in Europe in exchange or raise its own low corporate tax rate.

A senior German politician has said a further cut in the rate on emergency loans to Greece would be justified if the country carried out further reforms to reduce its debt risks.

The discussion about the eurozone debt crisis comes as Standard and Poor’s downgraded its debt rating for Greece by two points, bringing it further into junk territory.

The rating’s agency cut its rating for long-term debt to “B” from “BB-” and short-term debt to “C” from “B”.

“The downgrade reflects our view of increasing sentiment among Greece’s key  eurozone official creditors to extend the debt payment maturities of their 80 billion euro ($115bn) of bilateral loans pooled by the European Commission,” Standard and Poor’s said.

But Athens said the downgrade “placed the agency’s reliability in doubt”.

Debt markets have become increasingly jittery as Greece has failed to meet targets to cut its deficits as the austerity measures it has introduced has sent the economy into a tailspin.

Under its debt rescue plan agreed a year ago, it had been intended that Greece would return progressively to financial markets in 2012 to borrow the money it needs, but the interest rates demanded on the market are currently prohibitively high and make this outlook appear doubtful.

Leading eurozone finance ministers ruled out a restructuring of debt at an informal meeting on Friday, but are looking at whether to increase help to Athens, a European source told the AFP news agency.

EU and IMF officials are to begin this week a review of Greece’s progress before deciding whether to recommend it to receive a 12-billion-euro instalment under its bailout loan.

Source: News Agencies