Amid splits, eurozone prepares to discuss Greece again
European finance ministers aim to stitch together Greece’s next aid payment this week as a sputtering euro-area economy and a spat with the International Monetary Fund cloud efforts to resolve the debt crisis.
The finance chiefs are due to meet in Brussels tomorrow for the second time in a week after they agreed seven days ago to keep Greece’s bailout aid flowing. In addition to a disagreement between the European Union and IMF over softening Greece’s debt target, the ministers will attempt to re-engineer the current bailout without asking taxpayers to put up more money.
The talks are “likely to be tense as all players set out their positions,” Thomas Costerg, an economist at Standard Chartered in London, said in an e-mail. “Greece’s debt can is likely to be kicked further down the road, but we could see some constructive statements.”
The meeting of the ministers from the 17-member euro area underscores continuing skirmishes among EU officials confronting rising unemployment and a slowing economy as they struggle with the three-year-old debt crisis. The finance chiefs’ talks will precede a Nov. 22-23 EU summit to resolve the bloc’s budget, a project threatened by a dispute with the U.K.
With tens of thousands of Europeans staging protests last week against austerity measures and unemployment, shifting dynamics in other European countries could foreshadow renewed conflict — an early election in Italy, a regional vote in Spain and an approaching bailout package for Cyprus.
Spanish bonds fell last week, pushing 10-year yields to the highest level in six weeks, as a report showed the euro-area’s economy was pushed into recession in the third quarter. The euro has fallen 1.7 percent this month against the U.S. dollar, slipping 0.3 percent to $1.2743 on Nov. 16.
IMF Director Christine Lagarde took issue with European governments’ decision to push back Greece’s debt-reduction target by two years to 2022 against the fund’s recommendations, raising questions over whether the IMF would keep financing Greece.
Lagarde, who cut short a visit to Southeast Asia to return to Europe, signaled a potential clash in an interview in Manila on Nov. 17 by saying she’ll defend the IMF’s credibility.
Lagarde said that she was approaching the talks feeling “patient and resilient.” Even so, “we never leave the table,” she said when asked about dropping support.
The IMF target is for a reduction of Greece’s debt to 120 percent of gross domestic product by 2020, from a projected peak of 190 percent of GDP in 2014. An agreement on what qualifies as sustainable debt in Greece is required to plug a finance gap of as much as 32.6 billion euros ($42 billion).
Greece will probably need another aid package for the period after 2014, European Central Bank Board Member Joerg Asmussen said in an interview with German broadcaster ZDF yesterday.
Even though European leaders have pledged to do all they can to avert a Greek exit from the single currency, they’ve refused to return to parliaments for more funding. Finnish Premier Jyrki Katainen, speaking on YLE Radio Suomi at the weekend, again rejected further funds to Greece.
German Finance Minister Wolfgang Schaeuble told reporters last week that the current package could be re-jigged by cutting rates on loans or giving Greece extra time. In an interview on ARD television yesterday, he reiterated his rejection of a third option: write-offs of the country’s debt held by public institutions.
Greece, which has already undergone the biggest sovereign restructuring in history after private investors forgave more than 100 billion euros of debt in March, may need another write- off after the government enacts economic reforms, European Central Bank Governing Council member Jens Weidmann said at an event in Berlin on Nov. 16.
Luxembourg Prime Minister Jean-Claude Juncker, who oversees the finance chief meetings of the 17 euro nations, last week predicted a “definite decision” on releasing the next aid payment. He said the ministers might have to consult once more, possibly by teleconference, by the end of November to formally sign off on the updated rescue package.
“We have to find a common line and we have to do it on Tuesday,” Schaeuble said on ARD. “We’re working at full steam. I think we’ll do it.”
In Italy, supporters of Prime Minister Mario Monti inaugurated a new political party at the weekend to push for a continuation of the premier’s policies, which have included tax increases and spending cuts. That comes after Italian President Giorgio Napolitano said the national vote could be moved up if parliament completes its agenda by passing a budget plan and new election rules.
Such a scenario could bring forward the vote to March 10, coinciding with regional elections, rather than in April. Monti would have to improve on his support level that was 36 percent in a poll released by SWG Institute on Nov. 16. Sixty-two percent said they opposed a second Monti term, the poll showed.
“Monti can do the job of reconstruction on Italy and Europe better than anyone else,” Ferrari SpA Chairman Luca Cordero di Montezemolo said at a rally in Rome on Nov. 17 to inaugurate the new movement, Toward the Third Republic.
In Spain, Prime Minister Mariano Rajoy told party members that a vote for Catalan independence on Nov. 25 risked excluding the region from the EU. Calling an election in the region a “mistake,” Rajoy said the vote has wasted time, as polls showed a decline in support for Catalonia’s ruling party.
“Today it is in Europe because it is in Spain, and it benefits from Europe as the rest of Spain does, and it contributes to Europe as the rest of Spain does,” Rajoy told a meeting of his People’s Party in the Catalonian city of Girona.
[Bloomberg]
