This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2012/09/15/business/global/daily-euro-zone-watch.html

The article has changed 6 times. There is an RSS feed of changes available.

Version 2 Version 3
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 would need to channel aid to Spain and whether Greece should be granted easier terms to overhaul its beleaguered economy. NICOSIA — A widening split between France and Germany over the urgency of supporting the ailing Spanish economy, and over the scope of a banking regulation for euro nations, emerged on Friday at a meeting of European finance ministers.
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. The discord threatened to dampen the mood of an otherwise rare show of optimism in the region’s three-year debt debacle, as the finance ministers and international officials began a two-day meeting in Cyprus.
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. Since the European Central Bank early this month announced a program to buy the short-term debt of financially vulnerable countries, there has been a significant easing of market pressures on countries like Spain. In that sense, the gathering had little of the crisis mood that has surrounded so many of these meetings in recent years.
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. For once, the finance ministers had the opportunity to consider broader policy goals, like plans for further economic and financial integration of the euro currency union.
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. Still, there were signs of growing tensions between France and Germany, the two countries that so often determine how fast Europeans can turn words in action. Although often allies in the struggle to keep the euro zone together, it is clear that they are still feeling out their new relationship since François Hollande became president in June and appointed a new finance minister, Pierre Moscovici.
“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. Wolfgang Schäuble, the German finance minister, weakened expectations on Friday that a single banking supervisor for the euro zone would be in place by the end of the year.
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. The timing is hugely significant for Spain, because the creation of a single supervisor under the aegis of the European Central Bank is a precondition for allowing money from a new bailout fund, the European Stability Mechanism, to be used to support banks directly, a longstanding request of Spain.
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. The Spanish banking system is in desperate need of rescue loans from Europe that were agreed to in June.
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 the country has been reluctant to begin receiving it, unless the money goes directly to the banks and does not get counted as adding to the Madrid government’s own staggering debt load.
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. “My concern is always that there is the risk to raise expectations with financial-market participants that can’t be fulfilled later,” Mr. Schäuble said Friday. “I don’t see the possibility of a direct bank capitalization from the European Stability Mechanism as of January 1.”
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. The broad outlines of a new banking supervisor for the euro zone were spelled out on Wednesday by the European Commission. But there is disagreement over the size of that supervisor’s purview — whether it should oversee all 6,000 or so European banks, or only the largest ones that can have the biggest impacts on the financial markets.
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. Leading German officials including Chancellor Angela Merkel have said it is unrealistic to expect the E.C.B. to be able to oversee 6,000 banks effectively, as the plan proposes, because regulators would be spread too thin. Extending the system to all euro zone banks also would lead to greater scrutiny of Germany’s politically important smaller regional and local institutions — unwelcome scrutiny in many Germans’ view.
“We will have a lot of interesting discussions,” Wolfgang Schäuble, the German finance minister, said at a news conference as he arrived on Friday. Mr. Schäuble also discouraged Spain from seeking any fuller form of international assistance, saying in an interview with Bloomberg News on Thursday that such a request risked a new round of financial market turmoil.
“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. But Mr. Schäuble’s French counterpart, Mr. Moscovici, took opposite tacks at a news conference here Friday. He said that Europe’s plans for a single bank supervisor were well advanced, and that direct infusions of money from the bailout fund to euro zone banks should be able to proceed soon.
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. “I am not in agreement with him,” said Mr. Moscovici, referring to his German counterpart’s comments on the banking rules.
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. It should be possible “during 2012, and to go quickly,” to finish plans for a single bank supervisor. “To lose time, and to not go quickly,” he said, “that’s an error in view of the European situation.”
“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.” In a remark apparently aimed at his German counterpart, Mr. Moscovici said the crisis had an effect “on everyone, even Germany, which is today experiencing an economic slowdown.”
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.” Mr. Moscovici also suggested that the Spanish government itself probably could seek some form of outside aid to forestall any worsening of its debt crisis. “We have all the tools now to put into force the appropriate decisions to deal with the Spanish situation,” he said.
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. German officials have emphasized a different approach, saying continued economic overhauls in Spain might help continue to keep a lid the country’s borrowing costs without the need for outside aid.
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. “If they say they don’t need a program, then I trust their words,” said a German official on Friday, referring to the Spanish authorities. The official spoke on condition of anonymity because the negotiations between ministers were being conducted in private.
“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. Part of the show of German caution could be tactical on the part of the government led by Ms. Merkel, analysts said.
“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.” “We suspect domestic politics may have been partly behind this move,” Evelyn Herrmann, a European economist at BNP Paribas, wrote in a briefing note on Friday. “A new program for Spain would require a new round of parliamentary approval in Germany,” she wrote, and “it might prove quite challenging to achieve a clear majority for a full Spanish bailout within the ruling coalition.”
Jack Ewing contributed reporting from Frankfurt. Despite the disagreement between Mr. Schäuble and Mr. Moscovici, there was a general spirit of elation at the meeting about the reduction in borrowing costs in Spain and Italy in recent days.
On Friday, the interest rate on Spain’s 10-year bonds was 5.73 percent — compared with 7.5 percent at its most recent peak in late July. Italy’s 10-year bond was at 4.99 percent, down from a late-July peak of 6.5 percent.
“If we continue going this way, one has to be optimistic,” said Mario Draghi, the president of the European Central Bank, referring to improved market conditions. Countries also had made “significant progress,” he said at a news conference here.
Christine Lagarde, the managing director of the International Monetary Fund, who is also here, said she hoped that “momentum, which is clearly positive, will be maintained in order to take stock and consolidate the gains that have been recently seen on the markets.”
The I.M.F. is part of the so-called troika of international lenders to Greece, which currently has a team of examiners in Athens trying to determine whether the Greek government has taken sufficient budget-cutting steps to deserve its next installment of bailout loans. Ms. Lagarde said Friday that Greece could be allowed more time to trim its budget.