EU assistance saved Portugal 5.3% of GDP in interest

It has been ten years since Portugal requested external financial assistance, which included receiving loans from European institutions and the International Monetary Fund (IMF). With the loans coming from the EU, Portugal saved in debt interest the equivalent of 5.3% of GDP between 2011 and 2019, according to calculations made by the European Stability Mechanism (ESM).

“Cumulative estimated budget savings are significant for all former programme countries,” writes the institution led by Klaus Regling in the annual report. In eight years, Portugal was the third country to benefit the most, only surpassed by Greece (43.2% of GDP) and Cyprus (11.9% of GDP).

Among the countries that benefited least are Spain (1.2% of GDP), whose aid was less expressive, and Ireland (2.3% of GDP), which in recent years has seen its GDP increase significantly because, in recent years, several multinational firms decided to domiciled in the country.

These European loans generate budget savings for the countries as the European Union is able to finance itself at lower rates than the countries requesting financial aid, especially at a time of greatest financial stress when the interests that investors charge for lending money tend to be much higher.

The ESM estimates these savings by comparing the lending rates on ESM/EFSF loans with the interest rates that these countries would have faced had they covered the disbursed amounts in the market.

In its annual report, the ESM also reveals that the emergency credit lines made available in the first European response to the pandemic crisis, which also included SURE, have not yet been used by any member state, despite having been prepared and operationalised by Regling’s team in Luxembourg.