As we note in today’s dead-tree edition of the FT, the European Commission is out with its latest assessment of Portugal’s €78bn bailout. But buried in the report is a two-page box that raises the intriguing question of whether the bailout is actually bigger than leaders have disclosed.
In its small print, the box – soporifically titled “Euro Area and IMF Loans: Amounts, Terms and Conditions” – makes pretty clear that Portugal’s bailout will actually be closer to €82.2bn (we’ve posted the box here). Elsewhere, another table (posted here) says it’s actually €79.5bn.
Why the sudden increase? About €1.8bn of the rise is pretty straight forward. The International Monetary Fund, which is responsible for one-third of the total bailout funding, doesn’t pay its bailout aid in euros. Instead, it uses something called Special Drawing Rights, or SDRs, which have a value all of their own.
Because an SDR’s value fluctuates based on a weighted average of four currencies – the euro, the US dollar, the British pound and the Japanese yen – the 23.7bn in SDRs that was worth €26bn when the Portuguese bailout was agreed last year is now worth about €27.8bn, meaning Lisbon gets more cash just because of the currency markets.
The extra money from the EU is a little harder to explain.
Half of the €52bn in EU aid comes from loans guaranteed by the EU’s own budget. That €26bn has not changed. But the other half comes from the eurozone’s old €440bn rescue fund, the European Financial Stability Facility, which is now providing about €2.4bn on top of its original €26bn.
The reason behind the additional cash is a series of overhauls done to the EFSF which allow all money originally committed to the Portuguese programme to go directly to Lisbon. That may sound self-evident, but under its original setup, the EFSF had to hold back a “cash buffer” from every bailout loan to reassure credit rating agencies it had some financial reserves of its own to pay off a loan if a bailout country defaulted.
When the EFSF was restructured last year – eurozone member states raised their guarantees from €440bn to €780bn – that cash buffer was no longer needed, since credit rating agencies deemed the bigger guarantees were enough. So without the cash buffer being deducted, Lisbon now gets €28.4bn from the EFSF regardless of need.
The difference between the two calculations in the report (€82.2bn in the box, €79.5bn in the table) is less clear. For some unexplained reason, the total commitments by the IMF is listed in the table is €27.5bn, rather than the €27.8bn calculated in the box. And the EU commitments don’t take into account the new EFSF funding, instead remaining at €52bn.
We’re endeavouring to get to the bottom of the discrepancy. Stay tuned.