Malta to borrow money for Greece loan

Malta will have to borrow the money it plans to lend Greece as part of the €110 billion bailout agreed by the 16 eurozone finance ministers on Sunday, with the island standing to make a slight profit from the transaction.

Last night, Parliament approved the first reading of a Bill allowing the government to make the borrowing.

The deal with Greece, which is aimed at pulling its economy back from the brink of bankruptcy, means eurozone members will be lending Greece about €80 billion in the coming three years while the International Monetary Fund contributes the other €30 billion.

Malta has to borrow at least €27 million to finance its part of the lending, although this figure may rise since the final details have still to be agreed.

However, it is being viewed as a positive transaction and the island should profit from this deal.

"Malta does not have any money to spare because like many of the other eurozone members it has a structural deficit," a senior economist at the Central Bank said yesterday.

This means Malta will have to raise the money by borrowing either from the international financial markets or through local sources. The amount will then be lent to Greece at an interest rate of five per cent.

Asked whether Malta could possibly incur a loss over the deal, the official said this was unlikely.

"As Malta currently enjoys a positive credit rating, the island can borrow the money at a lower rate than five per cent. Thus, in theory Malta should make a slight profit. However, no one can say how the international financial markets develop over the coming years and a slight risk will always be there," the official said.

While the leaders of eurozone, including Prime Minister Lawrence Gonzi, have been called to an extraordinary summit on Friday to conclude the deal with Greece, the European Commission yesterday tried to reassure member states it would compensate those that would post a loss to "save" Greece.

According to Commission officials, all eurozone members should make a profit on the loans, with those who borrow most cheaply and lend the most making the biggest gain.

The loans are for three years, so Greece will start repaying them from mid-2013 until mid-2016, assuming disbursements continue throughout the three-year programme.

Commission officials said they did not believe this would be necessary since Greece would be able to borrow from the market earlier, and if it did, the borrowing would be instead of, rather than on top of, the emergency eurozone loans.

The loans to Greece will be paid out in 12 instalments over three years on the basis of its financing needs.

Disbursement would, however, depend on progress in implementing reforms and be decided based on quarterly reviews.

The first instalment will be paid out in mid-May, the EC officials said, to cover commitments to repay €8.5 billion in maturing debt. The exact size of further tranches has not yet been determined and will depend on Greece's needs.