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Spain and Greece Top Agenda of E.U. Finance Ministers Meeting Spain and Greece Top Agenda of E.U. Finance Ministers' Meeting
(about 4 hours later)
NICOSIA — Finance ministers from the euro area and international lenders began a two-day meeting here on Friday focused on how urgently they will need to channel aid to Spain and whether Greece should be granted easier terms to reform its beleaguered economy. NICOSIA — Finance ministers from the euro area and international lenders began a two-day meeting here on Friday focused on how urgently they would need to channel aid to Spain and whether Greece should be granted easier terms to overhaul its beleaguered economy.
In an unusual moment for the three-year crisis, there is some breathing room — at least in the case of Spain — and that should also give ministers the opportunity to consider broader policy goals such as plans to integrate the euro area further. In an unusual moment for the three-year crisis, there is some breathing room — at least in the case of Spain. That should give ministers the opportunity to consider broader policy goals like plans to integrate the euro area further.
Since the European Central Bank agreed early this month to buy short-term debt of vulnerable countries, there has been a significant easing of market pressures in countries like Spain. Since the European Central Bank agreed early this month to buy the short-term debt of vulnerable countries, there has been a significant easing of market pressures on countries like Spain.
The mood of optimism continued this week after the Dutch voted in larger numbers than expected for pro-E.U. candidates and the German constitutional court gave the green light for a new bailout fund for euro-area countries. Policymakers in Brussels also moved forward with a plan to make bank regulation more robust. The mood of optimism continued this past week after the Dutch voted in larger numbers than expected for pro-E.U. candidates and Germany’s Constitutional Court gave the green light for a new bailout fund for euro zone countries. Policy makers in Brussels also moved forward with a plan to make bank regulation more robust.
Arriving at the meeting, Jan Kees de Jager, the Dutch finance minister, said Greece could be granted additional time to meet its commitments under the current bailout program. Even so, he insisted that the country should not be given more funds.Arriving at the meeting, Jan Kees de Jager, the Dutch finance minister, said Greece could be granted additional time to meet its commitments under the current bailout program. Even so, he insisted that the country should not be given more funds.
“If the deficit turns out to be somewhat worse than expected because of a temporary downturn in the economy, there could be some time but not money, not extra money,” Mr. De Jager told reporters. “If the deficit turns out to be somewhat worse than expected because of a temporary downturn in the economy, there could be some time but not money, not extra money,” Mr. de Jager said.
Officials from the European Commission, the International Monetary Fund and the European Central Bank are currently in Greece to assess the country’s progress. The next installments from the aid packages for Greece, worth about €250 billion or $323 billion, are on hold while the government in Athens tries to find ways of making €11.5 billion in budget savings. Officials from the European Commission, the International Monetary Fund and the European Central Bank are in Greece to assess the country’s progress. The next installments from the aid packages approved so far for Greece, worth about a combined €250 billion, or $323 billion, are on hold while the government in Athens tries to find ways of making €11.5 billion in budget savings.
Another element of a packed agenda for the ministers is ensuring that euro-area countries pay in the capital they have pledged to the new E.U. bailout fund, the European Stability Mechanism, and how that fund, supposed to be worth €500 billion, should be structured. Another element of a packed agenda for the ministers is ensuring that euro zone members pay the capital they have pledged to the new E.U. bailout fund, the European Stability Mechanism, and deciding how that fund, supposed to be worth €500 billion, should be structured.
Jean-Claude Juncker of Luxembourg, the head of the group of finance ministers from countries that use the euro, has already said that the fund could be set up as soon as Oct. 8. Jean-Claude Juncker of Luxembourg, the head of the group of the Eurogroup of euro zone finance ministers, has already said that the fund could be set up as soon as Oct. 8.
But there has been widespread dissent over the proposed scope and reach of the plan for the banks proposed this week by the European Commission. That is significant because European leaders, led by German Chancellor Angela Merkel, have said that infusions E.S.M. into the economies of countries like Spain are contingent on better banking supervision. That, in turn, risks creating uncertainty about how soon countries like Spain asking for help might receive it. But there has been widespread dissent over the proposed scope and reach of the plan for the banks proposed this past week by the European Commission. That is significant because European leaders, led by the German chancellor, Angela Merkel, have said that infusions of E.S.M. funds into countries like Spain are contingent on better banking supervision. That, in turn, risks creating uncertainty about how soon countries like Spain might receive help.
There are also ongoing questions for ministers about what conditions countries like Spain should face if the E.C.B. intervenes to buy up its short-term debt. There are also questions for ministers about what conditions countries like Spain should face if the E.C.B. intervenes to buy up its short-term debt.
Many policymakers have said that the conditions for E.C.B. intervention are likely to be less onerous than those on countries like Greece benefiting from full sovereign bailouts. Yet that could add to the risks that countries eventually lose their resolve to reform their economies, allowing severe imbalances between euro area nations to develop once again. Many policy makers have said that the conditions for E.C.B. intervention are likely to be less onerous than those on countries like Greece, which is benefiting from a full bailout. Yet that could add to the risk that countries eventually lose their resolve to make painful changes to their economies, allowing severe imbalances between euro zone nations to develop once again.
“We will have a lot of interesting discussions,” Wolfgang Schäuble, the German finance minister, told reporters as he arrived on Friday. “We will have a lot of interesting discussions,” Wolfgang Schäuble, the German finance minister, said at a news conference as he arrived on Friday.
“We will of course inform about the decision of the constitutional court and how we can fast fulfill and solve conditions that the court set out to allow for the E.S.M. getting into force,” he said. “We will of course inform about the decision of the Constitutional Court and how we can fast fulfill and solve conditions that the court set out to allow for the E.S.M. getting into force,” he said.
France has been pressing Spain to seek help to contain the euro-area crisis, but Berlin, Europe’s principal paymaster for bailouts, may see less urgency, given the recent easing of market pressure on Spanish debt. France has been pressing Spain to seek help to contain the crisis, but Berlin, Europe’s principal paymaster for bailouts, may see less urgency, given the recent easing of market pressure on Spanish debt.
For Spain, asking for financial help of any kind poses major political challenges for Prime Minister Mariano Rajoy, who fears a backlash if he is forced to implement further, deeply unpopular austerity measures. For Spain, asking for financial help of any kind poses major political challenges for Prime Minister Mariano Rajoy, who fears a backlash if he has to implement further austerity measures.
“Mr. Rajoy is prepared to play the waiting game and see if he can ride out the current economic storm, or at least wait until the last minute before asking for help,” analysts at BNP Paribas wrote in a briefing note on Friday. “And, he does not appear keen to give up too much in return for any funding.” “Mr. Rajoy is prepared to play the waiting game and see if he can ride out the current economic storm, or at least wait until the last minute before asking for help,” analysts at BNP Paribas wrote in a research note Friday. “And, he does not appear keen to give up too much in return for any funding.”
The Austrian finance minister, Maria Fekter, said on Friday that she did not expect Spain to seek additional external aid right away. Instead, she emphasized that “Europe is stabilized” and “equipped to deal with all phenomena that come along.” The Austrian finance minister, Maria Fekter, said Friday that she did not expect Spain to seek additional external aid right away. Instead, she emphasized that “Europe is stabilized” and “equipped to deal with all phenomena that come along.”
The euro zone has already set aside €100 billion to help Spain recapitalize its banks, but the country may eventually need more aid because of large debts of autonomous regions that want help from the central government in Madrid. The euro zone has already set aside €100 billion to help Spain recapitalize its banks, but the country may eventually need more aid because of the large debts of its autonomous regions.
Mario Draghi, the president of the European Central Bank, said in an interview published Friday in a Munich newspaper that the decision to support troubled euro zone countries by buying their bonds was already having a positive effect. Mario Draghi, the president of the E.C.B., said in an interview published Friday in the Süddeutsche Zeitung that the decision to support troubled euro zone countries by buying their bonds was already having a positive effect.
“Fund managers are bringing their money back to Europe, that is good for the economy,” Mr. Draghi told the daily Süddeutsche Zeitung, in an attempt to win support from a skeptical German public. Critics will change their minds when they see the results of the E.C.B. measures, he said. “Fund managers are bringing their money back to Europe; that is good for the economy,” Mr. Draghi told the daily, in an attempt to win support from a skeptical German public. Critics will change their minds when they see the results of the E.C.B. measures, he said.
“Not to act would have been much riskier,” Mr. Draghi said in remarks published in German. “Financial markets have to know that the euro is irreversible.” “Not to act would have been much riskier,” he said in remarks published in German. “Financial markets have to know that the euro is irreversible.”
European stock markets were higher at midday, with the Euro Stoxx 50, a measure of euro zone blue chips, up 2 percent and the FTSE 100 index in London up 1.65 percent.
The euro was at $1.3109, up from $1.2890 late Thursday in New York.
The yield on the Spanish 10-year bond was at 5.566 percent, while the comparable Italian bond was at 4.938 percent. Borrowing costs in both countries had spiked above 7 percent before the recent series of market-calming events.
Jack Ewing contributed reporting from Frankfurt.Jack Ewing contributed reporting from Frankfurt.