Reducing Portugal’s public debt has been costly and will remain a long and difficult path that taxpayers will have to face in the coming decades to comply with the Stability Pact, as the total debt is equivalent to more than 100% of the public debt. the gross domestic product (GDP), while this should be 60% or less.
At the end of November, almost ten years after the official end of the Troika’s adjustment program, the State (the IGCP, the agency that manages Portugal’s public debt, under the Ministry of Finance) wrote off another 1.5 billion euros of what was still missing the massive bailout provided by European creditors to prevent the country’s bankruptcy in 2011.
To this was added the part of the International Monetary Fund (IMF), which, because it was too expensive, was paid off much earlier, in 2018.
The Ministry of Finance repaid the above-mentioned 1.5 billion euros to the European Financial Stability Facility (now known as the European Stability Mechanism, ESM in its English acronym), making up 95% of the double European loan (which amounted to 50.1 billion euros ) was due. ).
The part of the loan granted by the IMF under the rescue and adjustment programme, amounting to 28 billion euros, was completely written off in 2018 by the government of António Costa and the then Minister of Finance, Mário Centeno, who the effort already started by the previous government, of the PSD-CDS, of Pedro Passos Coelho. It was a much more expensive credit than that of European creditors.
According to the Portuguese Public Debt Agency (IGCP), the all-in cost rate, the final effective rate, for the IMF part of the rescue package reached an impressive 4.9%.
By comparison, European creditors charge, or have charged, interest in weighted average terms, all commissions included (all-in), between 1.6% and 2.2%, the IGCP said today.
For comparison, in 2023 all debt issues considered resulted in a cost (interest) for the Republic of 3.5%.
In the market for long-term private debt (ten-year bonds), Portugal is currently (Friday) paying a reasonable 2.7%, even as the European Central Bank (ECB) raises interest rate levels in the eurozone.
But what remains to be paid to Europe – to the ESM and the European Financial Stabilization Mechanism (MEEF) – despite interest rates being relatively low and decent, is still a lot (the size of the debt in euros) and will leave the country . under the supervision of European creditors for twenty years.
According to the plan in force today, the last payment tranches to both institutions are scheduled for 2042. So still about twenty years to go.
It’s always a lot of money. In addition, there are the new loan modalities that have emerged in the meantime (SURE, the employment support package created in response to the pandemic), the Recovery and Resilience Plan (PRR) loans and of course the most important debt, the Treasury Bonds (OT) held by major national and international private creditors (banks and investment funds) and central banks (for monetary policy purposes).
If we focus the analysis only on the so-called official European loans (ESM and MEEF), the weight of what remains to be paid represents almost a fifth of the total public debt. About 48 billion euros still need to be repaid.
ESM, the permanent rescue fund
ESM, the eurozone creditor, which was repaid in November with the aforementioned 1.5 billion, now has to repay 97% of the total money lent (initial total 26 billion).
This ESM or European Stability Mechanism (ESM) is the permanent rescue fund, which was created and institutionalized after the serious crisis that devastated the eurozone until 2014. “It is a financial institution established by the eurozone member states.”
The ESM can freely go to the markets, “raises money through the issuance of both money market instruments and medium- and long-term debt with maturities up to 30 years” and its mission is “to provide loans to its members (States) “when necessary,” provide precautionary financial support”, “buy bonds from the beneficiary Member States on the primary and secondary markets”, “recapitalize banks directly, under certain conditions”, etc.
MEEF, the emergency fund
Portugal received €24.1 billion from MEEF, the emergency fund hastily created in May 2010 to insure Ireland (the second state to fail after Greece), but still owes €22.3 billion, i.e. say 93% of the subsidy envelope has yet to be repaid.
According to an official European source, this European Financial Stabilization Mechanism (MEEF) was “created in 2010 and first activated for Ireland in December 2010”.
It was subsequently activated “for Portugal in May 2011 (the disbursement of the loan to these two Member States was completed in 2014) and for Greece in July 2015 to provide an interim loan”.
This MEEF “is covered by the budget of the European Union within the limits of its own resources, and the loans it provides are financed by loans from the European Commission on the financial markets, based on an implicit guarantee from the EU budget” .
The next few years
According to the official IGCP plan, there will be a pause in repayments to European creditors in 2024, but the payment cycle will resume in 2025, with an additional 1.5 billion euros for the ESM.
This will be repeated in 2026, with 800 million euros for the same eurozone fund, to which another 2.2 billion euros will be added for the MEEF.
And in 2027, a new round from the two European creditors will follow: taxpayers will be asked to repay another billion euros to the ESM and two billion to the MEEF.
The Bank of Portugal recalls that “the Economic and Financial Assistance Program (PAEF) was agreed in May 2011 between the Portuguese authorities, the European Union and the IMF”.
It was when Portugal went bankrupt and was unable to raise debt normally and at decent prices on the markets, that was the distrust in the viability of the country’s accounts and the sharp speculative attack carried out on the public debts of various countries in the eurozone. .
“With a strategy aimed at restoring confidence in international financial markets and promoting competitiveness and sustainable economic growth, the PAEF was based on three pillars: fiscal consolidation, stability of the financial system and structural transformation of the Portuguese economy” , the BdP explains. which was part of the Troika through the ECB.
Initially, “the financial assistance package for the period 2011 to 2014 provided a total of EUR 78 billion, of which EUR 52 billion corresponded to financing through European mechanisms and EUR 26 billion with assistance from the IMF. Of this, a total of 12 billion euros were allocated to public support for the solvency of the banking sector”.
The central bank now controlled by Centeno also recalls that “twelve assessment missions took place within the framework of the PAEF” and that “a total of eleven disbursements were received, representing approximately 97% of the total agreed amount”.
“The program expired on June 30, 2014, without disbursement of the final tranche.”
Source: DN
