The European Commission adopted to reduced interest rate margins and extended maturities for loans to Ireland and Portugal in two proposals. These proposals are expected to be approved by the Council in the coming weeks in order to enhance liquidity and contribute to the sustainability of both countries.

The Commission adopted new proposals to improve the measures under which the loans from the European Financial Stabilisation Mechanism (EFSM) were provided by the EU to Ireland and Portugal. These provisions are expected to be adopted by the Council in line with the 21 July 2011 conclusions of the Heads of State and Governments. The Commission proposes to align the EFSM loan terms and conditions to those of the long standing the Balance of Payment Facility. Both countries should pay lending rates equal to the funding costs of the EFSM, i.e. reducing the current margins of 292.5 bps for Ireland and of 215 bps for Portugal to zero. The reduction in margin will apply to all instalments, i.e. both to future and to already disbursed tranches.

In addition, the maturity of individual future tranches to these countries will be extended from the current maximum of 15 years to up to 30 years under the Commission's proposal. As a result the average maturity of the loans to these countries from EFSM would go up from the current 7.5 years to up to 12.5 years. The new financial terms will bring benefits such as enhanced sustainability and improved liquidity outlooks to Ireland and Portugal. Moreover, indirect confidence effects through the enhanced credibility of programme implementation should result in improved borrowing conditions for the sovereign as well as the private sector.

On the behalf of the EU for the purpose of funding loans made under the European Financial Stabilisation Mechanism (EFSM), the European Commission is empowered to contract borrowings. Under the EFSM, the EU can borrow up to €60 billion to on-lend to any EU Member State in financial difficulties.