Brussels, 09/11/2012 (Agence Europe) - On Monday 12 November, Eurogroup will hold detailed talks on Greece, less detailed talks on Spain and cursory talks on Cyprus, but is not expected to decide on the disbursement of the next aid instalment to Greece, despite hopes expressed by the Greek government after the Greek government agreed to new savings and austerity and the looming Greek debt repayment deadline.
Although fully aware of the deadline, the ministers are not expected to reach agreement on Monday and the eurozone finance ministers will therefore need further talks on progress by Greece on the second bailout package, explained a European source on Friday 9 November. The source said that accidental or deliberate default by Greece would not be allowed to happen and Greece's financial needs for 2012 would be covered. The Greek debt management agency, PDMA, announced the emission on Tuesday of €3.125 billion in three-month treasury bonds to enable Greece to meet its commitments while awaiting the next batch of aid. “Why is it taking so long?” asked Rebecca Harms (Greens/EFA, Germany) on Friday, speaking from Athens, criticising the German finance minister, Wolfgang Schaüble, for ruling out a decision by Eurogroup on Monday.
The Greek government has not given up and wants Eurogroup to decide on Monday. Greek finance minister Yannis Stournaras tried to calm nerves, saying that the next batch of aid would be forthcoming shortly. He said he was expecting a policy statement to be made after the Eurogroup meeting. Greek newspaper Ekathimerini says Greece is aiming at the seventeen finance ministers reaching final agreement at a second meeting on 19 November.
On Monday 12 November, the eurozone ministers will focus on several reports by the troika of lenders (the European Commission, the European Central Bank and the International Monetary Fund), one on progress in the Greek structural adjustment programme, a report on the sustainability of the Greek debt and a report on priority action demanded in the spring, in order to ensure that the second Greek bailout is genuinely back on track and Greek debt is manageable - preconditions for releasing the next aid instalment. At the Council, there is praise for the work already done, like the vote at the Greek parliament on structural reforms, and hope that the vote on the 2013 budget will go smoothly on Sunday.
The trickiest aspect of the talks is the Greek debt, which is still growing as a percentage of GDP because the recession is reducing the latter. In the spring of this year, the second bailout required the debt to be reduced to 120% of GDP by 2020 from more than 175% in 2012. Holders of Greek bonds (the ECB and member states) refuse to countenance a write-down in the €50 billion to €60 billion of bonds that they own, but are happy to let the profits generated on the bonds (some €8 billion) to be returned to Greece. The idea of Greece itself being granted cash from the ESM to buy its own bonds at rock-bottom prices had been discussed, but raises complicated legal issues.
No eurozone finance ministries will make any formal statements about Athens having until 2016 to meet its budget commitments. A European source said there had been “no decision yet, but I have reason to believe that the troika has been producing all of its reports and fiscal analyses and adjustment paths on the basis of an additional two years to reach a primary surplus of 4.5 percent of GDP.” This would be a victory for the Greek prime minister, Antonis Samaras, who made the extra time a campaign trail promise.
Spain. Despite a rise in interest rates for Spanish debt, the question of a full bailout for the country is not on Eurogroup's agenda. No formal request for aid has been made and Spain has room for manœuvre because it has rolled over virtually all of its 2012 debt already on the money markets, thanks to the impact of the ECB's announcement of its OMT debt-purchase programme (see EUROPE 10726).
Ministers will discuss application of reform programmes required as part of the Spanish bank bailout for which up to €100 billion has been set aside. They will say that progress is being made at a suitable speed to set up a “bad bank” for toxic bank assets by December 2012 and recapitalisation plans for the banks in question.
Cyprus. The troika of lenders has been in Nicosia since Friday for talks on a full bailout. At the Council, people say that full agreement is likely before the Cypriot general elections on 13 February 2013. One area of the talks is about the sheer size of the banking industry as a component of Cypriot GDP. (MB, EL/transl.fl)