Brussels, 05/10/2012 (Agence Europe) - On Monday 8 October, Eurogroup will examine the sovereign debt crisis country-by-country three weeks ahead of the Eurogroup meeting in Nicosia (see EUROPE 10689). The European Stability Mechanism will be inaugurated, a new eurozone bailout fund wit lending capacity of €500 billion, whose operating details still need to be determined by the ministers, particularly the mechanism for directly bailing out banks ahead of the introducing of a common eurozone bank supervision system.
When discussing Spain, Eurogroup may be tempted to accentuate the positive and minimise the potential need for a bailout programme to help the country roll over its debt at a lower interest rate. Several diplomatic sources said on Friday 5 October that the bond emission on Thursday had gone well, one of them commenting that there was no particular pressure about Spain's ability to raise finance on the money markets. The new structural reform programme recently announced by Spain to meet its budget deficit reduction target (to 6.3% of GDP in 2012 and 4.5% in 2013 and 3% in 2014) are an “excellent” transposition of the country-specific macroeconomic recommendations for Spain, said another diplomat, adding that the Spanish budget targets were a “doable challenge” (see EUROPE 10699). Moreover, the recent estimate that Spanish banks would need €53 billion in extra capital from the state was well below the €100 billion already promised by Eurogroup to this end (see EUROPE 10700). All of which is encouraging Spain to hold on and wait and see whether it would need financial aid. One source said that Spain hadn't made any request as yet, and if it were to do so in the future, it would not be any time soon.
Greek finance minister Yiannis Stournaras will brief Eurogroup about the €11.5 billion of budget measures planned by the government to meet its budget deficit target as set out in the country's second bailout. The measures have yet to be endorsed by the Greek parliament. The troika of lenders (the European Commission, European Central Bank and International Monetary Fund) is back in Athens, but will not be able to complete its assessment of the Greek bailout programme in time for the Eurogroup meeting, an assessment required before the troika will agree to pay out the next instalment of aid, some €31 billion. On Tuesday, the German chancellor, Angela Merkel, will travel to Athens for her first official visit in five years.
Portugal will present its recent general hike in income tax (announced this week) in order to meet its budget obligations (see EUROPE 10703). This new tax rise replaces a previous plan to get workers to pay more social security and employers less. Encouraged by the good implementation of the Portuguese programme despite a serious recession and the country's gradual return to the money markets, the ECOFIN Council on Tuesday is expected to formally announce the postponement to 2014 of the requirement for the Portuguese public deficit to be reduced to below 3%. The meeting will also announce the payment of a new instalment of aid, some €4.3 billion.
Cyprus is negotiating a structural adjustment programme in return for financial aid, and Eurogroup would like the island to explain its plans now that the country's leaders have announced stiff opposition to measures recommended by the troika (see EUROPE 10703). EU sources say the telephone is manned but Brussels is not being overwhelmed by phone calls.
On Tuesday, at the ECOFIN Council, the EU27 finance ministers will examine progress on the financial transactions tax (FTT) among the nine countries (or more) to be involved in enhanced cooperation. Following France and Germany (see EUROPE 10699), Austria, Belgium, Portugal and Slovakia said on Friday that they had all informed the European Commission that they want to introduce said tax based on the initial draft directive unveiled by the European Commission (a levy of 0.1% on shares and bonds and 0.01% on other financial products). Spain is prepared to consider joining in as long as the tax is introduced gradually and is extended to as many countries as possible. Italy may well do the same, but is concerned about how such a tax might impact on the spread of interest rates demanded to roll over Italian debt (compared with German debt) amidst the current instability. It says it wants to see tangible results in terms of a wider package of anti-crisis measures, particularly growth-stimulus, before deciding whether to join the FTT idea. Poland wants some of the FTT proceedings to be paid to the EU budget as a new source of funding. Other countries, like Greece, Hungary and Finland, like the FTT tax idea, but want to see how far the enhanced cooperation would extend geographically before committing themselves. In June this year, the ECOFIN Council found that it was impossible for the EU27 to agree on an FTT in the form suggested by the Commission (see EUROPE 10640).
Over breakfast, the ministers will discuss the plan to introduce a common eurozone bank supervision system. Initial technical talks revealed a unanimous desire to move fast and settle the matter by the end of the year, in contradiction to public statements by ministers to hold back the progress, explain European sources. The ECOFIN Council will highlight the urgency of the reforms to increase the quality and quantity of bank funding requirements (the CRD IV Directive) and will decide on new EU rules to defend the EU's financial interests. The ministers are expected to work out their approach for the G20 Finance Summit in Mexico. (MB and FG/transl.fl)