Wroc³aw, 15/09/2011 (Agence Europe) - The heads of the European monetary system will be meeting in Wroc³aw (Poland) on Friday 16 and Saturday 17 September for their first meeting since the hiatus in the eurozone debt crisis over the summer, a crisis that has now spread to Spain and Italy. The meeting will be attended by US Treasury Secretary Tim Geithner (but not the Eurogroup meeting before the EU27 meeting), which gives an indication of international partners' concern about the repercussions of the European malaise to the rest of the world's economy.
EU Economic and Monetary Affairs Commissioner Olli Rehn will unveil gloomy news at the Eurogroup meeting on Friday because, as he pointed out on Thursday 15 September (see separate article), the prospects for the eurozone economy have deteriorated and his staff have now revised down its forecast, expecting GDP in the eurozone to rise by 1.6% in 2011, growth being virtually static in the third and fourth quarter (at 0.2% and 0.1% respectively). Rehn said this was due to slow and piecemeal recovery, a “difficult” situation around the world, low domestic consumption and the accelerating sovereign debt crisis, but he did not expect the economy to enter recession. In a preparatory document for the ECOFIN Council, which has been seen by this newsletter, the EU Council of Ministers' Economic and Financial Committee (EFC) talks about a “systemic” crisis with the risk of a vicious circle of sovereign debt, bank refinancing and negative economic developments at a time when countries have far less budgetary room for manœuvre than in 2008-9.
Greece. The Eurogroup will discuss preparations for implementation of the second Greek bailout, concocted on 21 July at the eurozone summit (see EUROPE 10424) and will try to find a solution to Finland's request for collateral before Finland contributes its share of the loans to Greece. The ministers will also discuss private sector involvement in the second Greek rescue programme (€35bn between 2011 and 2013, assuming 90% of the creditors participate), the details of which should be finalised next month. In line with the 21 July decisions, the European Commission suggested on Wednesday a retroactive reduction in the interest rates on loans to Ireland and Portugal from the Commission's European Financial Stability Mechanism (EFSM). The maturity of the EFSM loans will be extended to between 15 and 30 years and the 17 eurozone countries are expected to ratify similar changes to the loans granted through the EFSF bailout fund.
During a telephone conversation on Wednesday evening, French President Nicolas Sarkozy and German Chancellor Angela Merkel told Greek Prime Minister George Papandreou that it was crucial that there be strict and effective implementation of the Greek economic recovery programme, explains the French government in a press release, pointing out that the future of Greece lies as a member of the eurozone. Similarly, Olli Rehn said on Thursday: “Whatever way you look at it, it is absolutely certain that a default and/or exit of Greece from the eurozone would carry dramatic economic and social and political costs, not only for Greece but also for all other euro area member states and EU member states, as well as for our global partners.” Paris and Berlin say that more than ever, it is crucial that the 21 July eurozone summit's decisions are fully implemented, but the decision on Wednesday by the Austrian parliament's finance committee to delay its vote on the expansion of the EFSF's powers is generating concern.
Reform of the Stability and Growth Pact. In Poland, ministers and central bankers will welcome the agreement in principle on Wednesday on the six pack of draft legislation to boost economic governance in Europe (see separate article).
In Tim Geithner's presence, the EU's central bankers and politicians will discuss the EU response to the debt crisis, pointing out the key need to get national finance in order. In order to combat the view of the financial markets that not enough has been done to counter the crisis, the EFC has set the following priorities - taking action to prevent the crisis spreading by introducing tough national policies; using the financial tools available at EU level while stressing the conditions attached to such aid; increasing budget discipline in the longer-term; stimulating growth; and putting pressure on banks to increase their capital where necessary.
On Saturday, the ECOFIN Council will discuss measures taken in the public and private sectors since the publication of the bank stress test results in July, particularly the measures introduced in countries whose banks failed the tests (or only just scraped through) (see EUROPE 10420 and 10421). The banks in question have until 15 October 2011 to communicate their strategy for meeting the targets set by the European Banking Authority (EBA). Changes to the MiFID (financial instruments) directive and credit rating agencies will also be discussed, along with draft legislation to be unveiled by the Commission to establish a crisis management system for when a bank goes bankrupt. Finally, the EU's negotiating position for the G20 finance summit in Washington at the end of the September will be decided upon. (MB/transl.fl)