Brussels, 13/07/2011 (Agence Europe) - Germany is not convinced that there is any need for an emergency eurozone summit on Friday. AFP reports that a spokesperson for the German government said on Wednesday 13 July that there were no tangible plans for a eurozone summit and the important thing is for finance ministers to keep working hard on the second Greek bailout. Greece is able to meet its financial commitments until the end of September, explained German Finance Minister Wolfgang Schäuble as he left the ECOFIN Council on Tuesday 12 July, rejecting the idea that the details of the second Greek aid programme had to be settled immediately.
The idea of a summit was mooted by President of the European Council Herman Van Rompuy in order to stave off any danger of the debt crisis spreading further afield in the eurozone (see EUROPE 10417). “Leaders have to rise above their domestic political agenda and they will. Proposals of the Eurogroup on measures to resist contagion risk in the euro area are urgently needed”, said Van Rompuy in Madrid on Tuesday after a meeting with Spanish Prime Minister José Luis Zapatero. Van Rompuy also travelled to Lisbon, where he met with the Portuguese Prime Minister Pedro Passos Coelho, who doubted that the measures under consideration would be sufficient to respond to the urgent need to find an over-arching solution. Nevertheless, a “big solution” looks unlikely to emerge in the near future. “There is no point in having a meeting that won't bring about a conclusion in a comprehensive sense to something that is not going to go away unless it is dealt with”, Enda Kenny, Irish Prime Minister, told the Irish parliament. A European Commission spokesperson said that a eurozone summit was one of the things being discussed, but the ultimate decision would be made by Herman Van Rompuy.
Moody's. On Wednesday, the European Commission slammed Moody's decision on Tuesday to downgrade Ireland's rating to junk status (it did the same for Portugal last week, see EUROPE 10413). For the same reasons as for the downgrade of Portugal, the rating agency said Ireland would need a further bailout, including private sector investors. “Yesterday's decision by Moody's to downgrade Ireland's credit rating is incomprehensible. The timing, as the second quarterly review mission is preparing to announce its findings, is to say the least questionable. The Irish government has showed determination in the implementation of the adjustment programme (Ed: a condition attached to the €67.5bn aid package). Irish banks are being recapitalised and return to growth this year. Of course much hard works lies ahead, but Ireland is in our view on the right track.”
Eurozone finance ministers have not yet decided how the private sector would contribute to the second Greek bailout (see EUROPE 10417). Along with the economic travails of countries like Spain and Italy, this dithering is feeding into uncertainty on the money markets, which fear a spread of the sovereign debt crisis. Faced with warnings from credit rating agencies about the danger of the options under consideration introducing a de facto selective Greek default, the Eurogroup is now examining new options which had been rejected in the past, and is considering allowing a selective default to occur despite repeated opposition from the European Central Bank.
Measures have been announced that will make the EFSF bailout fund more flexible. It has been used thus far to provide aid for Ireland and Portugal and may now be given greater teeth. It would be able, for example, to buy written-down debt on the secondary market (direct from investors). Bond purchases are already possible because EFSF loans can be used by countries in receipt of aid to buy back their own bonds at low cost, but only under strict conditions for the countries concerned. Buy-back options are favoured by the IIF bank lobby as they would have the advantage of scaling back the size of the debt and hence the debt burden. The Eurogroup is also considering extending the maturity of bailout loans to eurozone countries and reducing the interest rates charged.
Any moves to reduce the scale of Greece's debt (€350bn) are likely to be interpreted by the money markets as a default, but the devil is in the detail. “There is a world of difference between a temporary selective default that is part of an orderly process, and a disorderly default. Markets wouldn't be disrupted by a selective default if it were in the framework of a lasting solution for Greece”, explained the managing director of the IIF lobby group, Charles Dallars, to the Wall Street Journal. Dallars met with Commissioner Olli Rehn on Tuesday. The Wall Street Journal says the IIF has suggested measures to provide Greece with the cash to buy back up to €50 billion of its bonds held by the European Central Bank. (M.B./transl.fl)