Brussels, 04/10/2011 (Agence Europe) - On Monday 3 October, the Eurogroup reached agreement on the granting of the collateral demanded by Finland for its share of the second Greek bailout package. The Eurogroup approved of the latest measures announced by Greece, but postponed until the second half of October the decision on whether to pay out the next instalment (€8 billion) of the first bailout, although this is now highly likely. The ratification of the changes to the EFSF bailout fund will be completed by the time of the upcoming European Council, but further improvements are already being discussed.
Open to all eurozone countries that have lent Greece money, the agreement on the collateral for the Finnish loans is a highly complicated financial arrangement, explained the EFSF director general, Klaus Regling. The collateral is in the form of Greek bonds that Greek banks will provide a trustee with, which will sell them and invest the cash thus raised in AAA-rated securities with maturity ranging between 15 and 30 years. A high price will be demanded for this collateral because the Finnish share of the capital of the future European Safeguard Mechanism (ESM) that will replace the EFSF in July 2013 will have to be paid in a single instalment in July 2013 rather than in five separate stages (as for the other countries); the profits generated by the EFSF loans will be reduced; in the event of Greece defaulting on its loans, the repayment of the Finnish section of the loans will not occur until the loans reach maturity; and it will only be possible to get back 20% of increases in the collateral. Regling said that this was the price that had to be paid and it was highly unlikely that any other country would join Finland in demanding collateral. The chair of the Eurogroup, Jean-Claude Junker, said that when he asked whether any other country was interested, the answer was clearly no. Describing the arrangement as “balanced and fair”, EU Economic and Monetary Affairs Commissioner Olli Rehn said he was pleased the matter was no longer on the agenda.
Jean-Claude Juncker said that Europe would not let Greece go bankrupt. Eurogroup welcomed the country's latest austerity measures to meet its budget commitments in 2011 and 2012, although it says that Athens could do more on the privatisation front. The fact-finding report of the European Commission, the ECB and the IMF will not be ready in time for a decision to be taken on Thursday 13 October about the payment of the next instalment of aid (€8bn) under the first bailout, a date initially planned for a special meeting to release the funding. Juncker said the decision would be taken in October once Greece has made it clear that it is able to meet its financial obligations in the meantime. Above all, Greece must return to a primary structural surplus in 2012, in other words, being in budget surplus before servicing its debt. Greek finance minister Evangelos Venizelos expects the Greek primary budget to be in surplus to the tune of 1.5% of GDP next year (see EUROPE 10465).
New measures for 2013 and 2014. The Eurogroup is demanding new security measures for 2013 and 2014 to fill gaps in the public deficit reduction process arising from the deeper than expected economic recession (5.5% in 2011 and 2% in 2012). Rehn commented that it was highly likely that new measures would arrive for 2013 and 2014. How long will Greece be able to withstand the torture of never-ending austerity measures? Admitting that huge sacrifices are being demanded of the Greek people, Juncker hoped the European debt crisis would not lead to hostility to the EU's recommended economic model.
The second Greek bailout includes voluntary involvement from the private sector of around €37bn in 2011-2014, in the form of a 20% reduction in the value of the Greek bonds held. The chair of the Eurogroup said that discussions were underway to tinker with the technicalities of the agreement from the 21 July 2011 eurozone summit meeting because changes had occurred since then.
EFSF. Only two eurozone member states, the Netherlands and Slovakia, now need to ratify the 21 July agreements, explained Juncker, expecting both countries to do so in the first half of October, in time for the 17-18 European Council. Arriving in Luxembourg for the Eurogroup meeting, Germany's finance minister, Wolfgang Schäuble, put pressure on Slovakia, saying that he hoped that all politicians in Slovakia would take their responsibilities seriously and bear in mind that they were taking the decision not just for themselves, but for the security of the whole of Europe. The Slovakian government coalition met up on Tuesday to decide on a ratification date, probably Friday 14 October. Despite opposition from the SaS Liberal party (part of the coalition), there is now little doubt that Slovakia will vote in favour of the changes to the EFSF because the Left opposition has decided to back the government.
Alongside talks about progress on the granting of loans to bail out banks in eurozone countries, the eurozone finance ministers also discussed how the EFSF could be given more teeth without increasing the financial burden on eurozone countries, explained Juncker.
The idea of linking up the EFSF and the ECB is reported to have been ruled out.
The ministers are expected to complete their consideration of how to beef up the EFSF by the next Eurogroup meeting, but Rehn said that the buying up of eurozone bonds by the EFSF and increasing its effective lending capacity to €440 billion would not suffice to prevent the further spread of the sovereign debt crisis. The Spanish finance minister, Elena Salgado, welcomed the idea of giving the EFSF greater lending capacity without increasing the size of the fund as such.
Economic governance. Asked whether the ministers had discussed changes to eurozone governance, Juncker said it was natural for the president of the European Council, Herman Van Rompuy, to chair the EU27 finance meetings as well as the eurozone finance meetings but new walls must not be built (referring to fears about a two-speed Europe being expressed by countries not yet in the euro but which signed up to the single currency when they joined the EU). Juncker warned that no huge changes were to be expected in this domain. Jean-Claude Juncker will be meeting Herman Van Rompuy shortly to discuss how the Eurogroup's work intermeshes with the work of European finance ministers and heads of state and government. Shortly after this meeting, the president of the European Council will publish proposals for the October summit on strengthening economic governance.
Rehn said that ministers must build on the changes to the Stability and Reform Pact, changes formally agreed by the ECOFIN Council on Tuesday, a week after the vote at the European Parliament (see EUROPE 10462). He said he would be making full use of the new measures as soon as they came into force, which would be by 1 January 2012 at the latest. On the division of economic governance powers, he said eurozone summits should focus on the overview and direction of policy, while the Eurogroup should focus on economic coordination and budget surveillance, making use of the reports and analysis provided by the European Commission. (MB/transl.fl)