Brussels, 22/06/2011 (Agence Europe) - Heads of state and government will meet in Brussels on Thursday 23 and Friday 24 June in a European summit to try to find a way out of the Greek crisis and so avoid destabilisation of the euro area. They are expected to press Athens to adopt the additional austerity measures that have been called for in exchange for the payment of a €12 billion tranche of aid. Leaders will also discuss the arrangements for the private sector's contribution to the cost of a second financial bail-out, based on the principles set out by Germany and France. They will consider European Commission proposals to provide Greece with further technical assistance through better absorption of structural funds (see EUROPE 10401).
A little over a year since the first Greek bail-out (€110 billion in bilateral loans), the EU is considering a second aid plan to ensure Greece's medium-term. This plan, involving a sum more or less the same as the last, will be funded by institutional creditors (EU, IMF), the privatisation programme which aims to bring in €50 billion by 2015, and participation from the private sector. The European Council could adopt the Franco-German principles on the contribution by investors: participation is to be voluntary, will not cause a credit default, will be approved by the European Central Bank and a decision on the issue is to be taken as quickly as possible (see EUROPE 10400).
German Chancellor Angela Merkel acknowledged, on Wednesday 22 June, that the option initially favoured by her government - to push out Greek debt maturities by seven years - would have led to “a situation where the other countries, though not Germany, (would have been) unable to recapitalise their banks without becoming targets for the markets”, Reuters reports. It would have unleashed “contagion through Europe for which I do not want to be responsible”, she said, in an attempt to persuade German MPs of the correctness of the government position. Merkel said she did not expect any decisions to be taken on Greece at the European Council. On Monday, the Eurogroup advocated maintenance of private creditor Greek exposure through their buying back the bonds they hold under the same conditions and with a maturity date, on the same lines as the Vienna Initiative (see EUROPE 10401). This initiative, launched in 2009, allowed the maintenance of public and private creditors in the Eastern European countries hit hard by the financial crisis. The United Kingdom and the Czech Republic will not be part of this second Greece bail-out.
In a debate in the European Parliament on Wednesday European Commission President José Manuel Durão Barroso welcomed the vote of confidence in the reshuffled Socialist government, in the Greek parliament, the previous evening. This was a vote which, although demonstrating deep division within Greek politics, suggests that, on Tuesday 28 June, the text setting out the €28 billion-worth of additional austerity measures and acceleration of the privatisation programme will be passed. “The impression given by the politicians of this country is that they have not understood how serious this crisis is”, said Greek Prime Minister George Papandreou after the vote. Barroso told MEPs that political “consensus” was needed if Greece was to win back the confidence of investors. Liberal Group leader Guy Verhofstadt (Belgium) called on his counterpart in the EPP, Joseph Daul, to bring pressure to bear on Antonis Samara, the leader of the Nea Dimokratia party which is affiliated to the EPP.
Former Belgian prime minister Verhofstadt suggested, too, that Europe would not be able to escape the sovereign debt crisis if it did not propose an exhaustive solution going beyond austerity measures. “Giving Greece more money will not bring an end to the crisis either”, he said, recommending “structural solutions” (for example, giving private investors guarantees, EIB loans, using the revenue from the privatisation to finance investment). He argued for budgetary federalism and the creation of a European sovereign debt market.
A troika (Commission, ECB and IMF) team was in Athens at the start of the week to check that Greece and its creditors had “the same understanding” of the austerity measures, as Economic and Monetary Affairs Commissioner Olli Rehn put it. New Finance Minister Evangelos Venizelos seemed to want to take some liberties with the approved package of measures.
Economic governance. Barroso said he hoped that the European Council would, while maintaining the same level of ambition, adopt the country-specific recommendations that the Commission made on national stability and structural reform programmes under the European semester (see EUROPE 10393). Several countries, including the Hungarian Presidency, complained about the lack of time to evaluate the recommendations. Supporting the EP position in talks on the reform of the Stability Pact, Barroso also urged the Council and the EP to bring a conclusion to this issue as quickly as possible. The summit will probably reiterate his wish that the legislative package be decided before the end of June, while MEPs will vote on Thursday to approve the position of the EP, which is more ambitious than that of the Council, despite attempts by the Left to have the vote delayed (see EUROPE 10401).
Rescue funds. The European Council will finalise work on amending the Lisbon Treaty in an effort to provide the future European Stability Mechanism (ESM) with a solid legal basis. This amendment will enable eurozone countries to establish “a stability mechanism” and activate it if it proves indispensable for protecting the stability of the eurozone. The granting of any financial assistance will be subject to strict conditions. The ratification process will be triggered in member states so that the ESM becomes operational in mid-2013.
European leaders will also ratify the legal texts that will modify the EFSF, currently being used to support Ireland and Portugal. They will also establish the ESM on the basis of the agreement indicated by European finance ministers (EUROPE 10401). The effective lending capacity of the EFSF will be raised to €440 billion, thanks to an increase in national guarantees from €440 billion to €780 billion. The ESM will have an effective lending capacity of €500 billion and, like the EFSF, it will be able to acquire shares from the primary sovereign debt market. Contrary to what had been planned initially, the permanent rescue fund will not benefit from a privileged status for reimbursing loans granted to eurozone countries in difficulty. These will be placed at the same level as private investors. “This is good news for Greece, Ireland and Portugal”, declared the president of the Eurogroup, Jean-Claude Juncker, on Monday in Luxembourg.
The summit will also approve the candidacy of the governor of the Banca d'Italia, Mario Draghi, to take over from Jean-Claude Trichet at the head of the ECB in November. (M.B./transl.fl)