Brussels, 26/09/2011 (Agence Europe) - Under pressure in Washington at the weekend from their global partners to do more to solve the euro debt crisis, the eurozone politicians admitted that they had to come up with new ways to make the EFSF bailout fund more effective, but want to concentrate for the moment on the decisions taken by the special eurozone summit on 21 July, which the 17 euro countries are expected to ratify in less than a month's time. The Eurogroup meeting on Monday 3 October will not decide on the payment of the next instalment of aid to Greece (€8bn under the first bailout programme) because the European Commission, ECB and IMF fact-finders will not have finished work at that point. Time is running out because if it does not receive new cash, Greece will run out of money and default on its debts next month.
“We are contemplating the possibility of leveraging the EFSF resources to have more firepower and thus have a stronger financial firewall to support our member states that are doing the right thing”, said EU Economic and Monetary Affairs Commissioner Olli Rehn on the fringes of the IMF and World Bank AGMs. He said this longer-term reflection should include greater budget integration and the introduction of eurobonds. Arguing that the main problem was to reduce deficits as quickly as possible, French Economy Minister François Baroin said that giving the EFSF more clout might also be considered at the end of the day.
Eurozone nations have already increased their sureties to the EFSF so that it can provide up to €440billion in loans and may decide to expand on this because the EFSF in its current state would not be able to bail out bigger nations like Spain and Italy. One option on the table is turning the EFSF into a quasi-bank and giving it access to European Central Bank assets. The ECB could provide loans perhaps to investors, which they would then use to buy struggling countries' bonds, with the EFSF absorbing any losses. “There are other options than going to the ECB”, commented German Finance Minister Wolfgang Schäuble.
In Washington, the EU's international partners put pressure on Europe to get it to get to grips with the sovereign debt crisis. “The threat of cascading default, bank runs and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally”, warned US Treasury Secretary Tim Geithner, who travelled especially to Europe to attend the EU finance ministers' meeting in Wroc³aw (Poland) earlier this month. He added, however: “I am very confident they're going to move in the direction of expanding [their] effective financial capacity.”
Ratification. The most pressing matter for the moment is getting the 21 July eurozone decisions ratified by all 17 eurozone member states, decisions on the details of the second Greek bailout (including private sector involvement) and giving the EFSF bailout fund greater powers so that it will be able to issue extra-low-interest and long maturity loans to struggling countries. It will also be able to purchase bonds from a country directly or from investors on the secondary market and, once the ECB has given its agreement, it will be able to issue special loans to countries not undergoing an austerity programme so that they can bail out their banks, where necessary, which are suffering because of exposure to sovereignty debt.
Eight member states - Belgium, Spain, France, Greece, Ireland, Italy, Luxembourg and Portugal - have thus far ratified the 21 July eurozone summit decisions. Germany will decide on the matter on Thursday 29 September. The German opposition has said that it will vote in favour so there seems little doubt that the Bundestag will vote through the decisions. Schäuble said that 80% of the Bundestag would vote in favour. All eyes are on Angela Merkel's supporters because lack of support from her own side would weaken her position. The Slovenian parliament will also be deciding later this week.
In Finland, it seems that the parliament will approve the deal as long as the government can provide assurances that the guarantees negotiated with Greece by the Finns for the Finnish section of the EFSF will be forthcoming. The final eurozone country to vote on the deal is Slovakia, on Tuesday 11 October, where the government is opposed by a section of the liberal party (a member of the coalition government).
Greece's international creditors. On Monday 26 September, Olli Rehn's spokesperson said that the Eurogroup would not be in a position to decide in Luxembourg on Monday 3 October about the payment of the sixth instalment of aid to Greece under the first bailout programme (€8bn). The international creditor experts are not yet back at work in Athens and no progress has been made in getting them to return. They are due to publish a detailed progress report on the country's economic and budget situation and Eurogroup and the IMF will not authorise the next instalment until they have examined the report.
Time is of the essence. If no new cash is forthcoming, then Greece might run out of money before the end of October. The European Commission said it was aware of Greece's pressing rollover needs and the conditions to be met for new finance. At the weekend, Rehn warned that Greece was facing the moment of truth and this was its last chance to avoid total collapse of its economy, and that all the conditions had to be met in full before further funding would be provided.
The disagreements between Greece and its international creditors, disagreements that are preventing the resumption of the fact-finding mission, are the gaping holes in the budget for 2011 and 2012, the introduction of structural reforms and details of the privatisation programme. Rehn's spokesperson said that highly significant announcements had been made that demonstrated the Greek government's commitment to meet all the budget requirements. New measures were announced last week to fill the gap in this year's budget of nearly €2bn, with the introduction of a one-off property tax, for example (see EUROPE 10150).
In Washington on Sunday, Greek finance minister Evangelos Venizelos was hard at work winning over the IIF (international bank lobby group) and convincing it that the country would be able to meet its commitments. He set out the Greek government's structural reforms and privatisation programme and said that €4bn euro would be collected by the end of the year from the sale of the country's public goods. “Greece is now and will always be an EU and a euro area member-state”, he said.
Economic governance. During his State of the Union speech at the European Parliament on Wednesday 28 September, President of the European Commission José Manuel Durão Barroso will set forth his ideas about how to boost economic governance in the EU, following which the MEPs will endorse the agreement in principle reached by the Council of Ministers and the EP about changes to the Stability and Growth Pact (see EUROPE 10455). Rejected by the Left in Europe, the changes will increase surveillance of budget deficits and debt and introduce a new macroeconomic surveillance procedure. It will be possible to fine eurozone countries breaking the new rules at an earlier stage in the proceedings and with less wriggle-room for the member states. (MB/transl.fl)