Wroc³aw, 15/09/2011 (Agence Europe) - Implement the package, implement the package, implement the package. Eurogroup keeps on telling Greece that it has to implement its budget commitments if it is to receive a new batch of aid next month. This was the message sent out on Friday 16 September 2011 from the Eurogroup meeting in Wroc³aw (Poland), which urged the twelve eurozone countries that have not yet ratified the 21 July 2011 eurozone summit's decisions to do so over the next month. Talks are continuing on Finland's demand for collateral from Greece about its share of the second Greek bailout.
The chair of Eurogroup, Jean-Claude Juncker, said Greece had to totally respect its budget and structural reform commitments. He said he was happy with the new measures, like the introduction of a one-off property tax, taken by the Greek government last weekend to plus a nearly EUR 2 bn gap in the 2011 budget (see EUROPE 10450). Juncker said the decision to pay out the next tranche of aid would be taken into October, depending on the report to be published by the fact-finding group that travelled to Athens earlier in the week (experts from the European Central Bank, the European Commission and the International Monetary Fund). EU Economic and Monetary Affairs Commissioner Olli Rehn said the ball was now in Greece's court and welcomed the Greek government's firm determination to implement its austerity programme. Greek finance minister Evángelos Venizélos told his counterparts that Greece was determined to respect all its commitments in 2011 and 2012 in order to keep the budget deficit as small as possible. For the fourth year in a row, the Greek economy is in recession, with the economy due to shrink by 5.3% this year.
The President of the European Central Bank, Jean-Claude Trichet, drew the eurozone countries' attention to the need for strict, detailed and rapid application of absolutely all the decisions taken. Countries receiving financial aid had to take the measures set out in their structural adjustment programmes and the other sixteen must ratify the 21 July eurozone summit's decisions on the second Greek bailout and expanding the powers of the eurozone's bailout fund, the EFSF. To this end, Juncker said the deadline for national ratification was mid-October, but France and Germany wanted everything to be signed and sealed for the end of this month. So far, only five Member States, Belgium, Spain, France, Italy and Luxembourg, have actually ratified the deal. Germany will decide on 29 September, but Austria has postponed its ratification and there are doubts about Slovakia's ratification date.
EFSF. As decided on 21 July, Eurogroup has set out the details of how the EFSF loans to Ireland, Portugal and (soon) Greece are to be paid for. The interest rates will cover the rollover costs and the operational costs, he said, but would be reduced as far as possible to make it easier for countries to service their debt. Creditor countries will therefore have to accept a lower interest rate for their loans to struggling countries. Delighted with the EFSF's visibility, its director general, Klaus Regling, said that it would be able to lend up to EUR 440 bn and take a range of action (buying bonds on the secondary markets and bailing out banks in countries not receiving financial aid) as soon as the eurozone countries have endorsed the 21 July decisions, by which time the EFSF would itself be ready, he said.
Collateral. Any hope of an early agreement on the collateral demanded by Finland for its share of the second Greek bailout were dashed in the early morning. Finnish finance minister Jutta Urpilainen said upon arrival at the meeting that she didn't think a solution would be found that day. In the early 1990s, Finland had suffered a severe financial crisis and had provided collateral to the financial industry as part of the solution to the crisis. Under pressure from Eurosceptic sentiments in public opinion, the government is demanding similar pledges from the Greek government in the form, for example, of cash on deposit, or real estate. Other eurozone countries, like the Netherlands and Austria, are reported to be tempted to demand the same type of collateral. In order to make any such collateral system less attractive, any beneficiary country might be expected to accept a lower interest rate on the collateral. Belgian finance minister Didier Reynders said that if Finland wanted guarantees, when it would clearly receive a lower return on its loans.
EU-US dialogue. As a sign of the depth of the crisis, US Treasury Secretary Tim Geithner travelled to Wroc³aw to call for an expansion of the eurozone bailout fund. "What's very damaging is not just seeing the divisiveness in the debate over strategy in Europe, but the ongoing conflict between countries and the central bank," he warned. The ECB's policy of buying up struggling countries' debt has been strongly criticised in Germany and has led to the resignation of the two German governors from the ECB's Governing Council, Weber and Stark. The ECB has long opposed private sector participation in the second Greek bailout and the idea of Greece being kicked out of the eurozone is being discussed, despite the fact that the Chancellor of Germany, Angela Merkel, and the President of France, Nicolas Sarkozy, keep on saying that Greece belongs in the euro.
Jean-Claude Juncker said that European leaders had to learn verbal discipline to put an end to the cacophony that is currently undermining the eurozone's credibility, but Europeans don't like being given lessons from overseas. Germany's finance minister, Wolfgang Schäuble, said: "We need to resolve our problems on both sides of the Atlantic in order to get more stability into the financial markets," The President of Eurogroup, Jean-Claude Juncker, said he didn't think the new US approach could be applied in Europe because the eurozone doesn't have the room to manoeuvre to implement such a stimulus programme. The Commission believes that the handful of countries without big deficits should act as economic stabilisers to soften the impact of the slowing economy. Trichet said the decision to provide cash to banks in the form of dollars, which had been welcomed by the markets, gave an indication of the close level of cooperation among central banks.
Eurobonds. Olli Rehn said that the Commission's eurobond feasibility study would be published this autumn and would look at the economic and legal issues surrounding the introduction of eurobonds to pool a portion of the debt of eurozone countries. The introduction of eurobonds would necessitate greater economic governance and greater budget discipline, he said, because 'otherwise, eurobonds would turn into junk bonds.' (M.B./transl.fl)