Brussels, 12/07/2011 (Agence Europe) - The chair of the Eurogroup, Jean-Claude Juncker, summed up the decisions taken on Monday 11 July by eurozone finance ministers to prevent the euro sovereign debt crisis spreading to key economies like Italy by saying that the ministers had come up with a programme to stop the crisis in its tracks. The ministers want to expand the range of options at their disposal to this end, by giving the EFSF greater clout. They repeated their desire that the private sector should voluntarily decide to contribute towards the costs of the second Greek bailout, even if the way this is actually carried out might be interpreted by the markets as a de facto partial default. The markets were jittery on Tuesday (the third day of high tension), concerned about the lack of a political statement and a timetable for action, and this manifested in record high interest rates for rolling over Spanish and Italian debt. The president of the European Council, Herman Van Rompuy, commented in Madrid on Tuesday 12 July that a summit of eurozone heads of state might be convened at the end of the week, if necessary
The Eurogroup said it was absolutely determined to ensure financial stability and prepared to introduce new measures to improve the eurozone's ability to ward off the danger of the crisis spreading. The new measures include making the EFSF more flexible and extending its scope (the EFSF is the bailout fund that has provided aid to Ireland and Portugal), extending the maturity of loans and reducing interest rates on bailouts. Draft legislation to this effect will be submitted to the ministers very rapidly and other funds are under review, explained Juncker. He added that Tuesday's meeting had discussed extending the payback time for loans to struggling countries for the very first time. Expanding the options available to the EFSF can be interpreted as a confirmation of the rumours that it will contribute to the funding of the second Greek bailout.
Is EFSF intervention on the secondary markets on the cards? EU Economic and Monetary Affairs Commissioner Olli Rehn said there were various ways of making the EFSF more flexible and no options had been ruled out. Intervening on the secondary markets means that the EFSF would be able to buy up struggling countries' bonds directly from investors, which Germany has always opposed until now. The EFSF has only recently been allowed to buy bonds directly from the country in question on the primary markets.
Greece. Juncker said the Eurogroup had welcomed the ideas from the private sector about how they could contribute to the funding of the second Greek aid programme, expected to be around the size of the first bailout (€110 billion). Juncker said that the private sector would definitely be contributing, in line with the conclusions document issued after the most recent European Council. The Austrian finance minister, Maria Fekter, said the ministers had agreed that they would discuss different ways of bringing the private sector on board.
The ministers were less categorical in their statements after this meeting about the need for the private sector to contribute to the bailout costs for Greece to avoid a partial default. Such a statement was made explicit in the previous statement, but the declaration by the ministers on Tuesday simply refers to the European Central Bank's repetition of its view that a credit event or selective default must be avoided. A partial Greek default would mean that Greek banks would no longer be able to borrow cash from the ECB and would therefore send a shockwave through the money markets with unpredictable results. Juncker said that this didn't mean that the Eurogroup would be doing what it could to cause a credit event. The Dutch finance minister, Jan Kees de Jager, said that a credit event could no longer be ruled out.
Three options are being examined. French banks have suggested that some Greek bonds maturing in 2011, 2012 and 2013 should be rolled over into third-year bonds. This suggestion is backed by the European Council but seems to have been stymied by the fact that Standard & Poor's rating agency warned that this would lead to Greece defaulting on its debt. Germany wants to see a “substantial” contribution from the private sector and has suggested a more ambitious re-scheduling of Greek debt by expanding the maturity of all bonds by seven years. The ECB is strongly opposed to this idea. The International Finance Institute (IFI) bank lobby group suggests using debt buy back techniques.
In a letter to the Eurogroup, Greek Prime Minister George Papandreou slammed the lack of any firm decisions about the Greek debt crisis, saying that this situation of indecision and errors was generating a cacophony and had to be replaced by a common agenda to create security in the place of panic. He complained that Greece was paying the price of experimentation and unnecessary confusion. (M.B./transl.fl)