Euro Chiefs Spar on Greek, Spanish Aid
By James G. Neuger and Mark Deen - Jun 21, 2012 10:29 PM PT
Lenders of 240 billion euros ($301 billion) to Greece offered no sign of granting extra time for the newly installed Athens government to meet deficit-cut targets. With Spain set to request as much as 100 billion euros to rescue its teetering banks, the officials quarreled over how to design a recapitalization program that doesn’t scare investors away from Spanish government bonds.
That summit, the 19th since Greece’s financial meltdown rattled the euro, will try to resolve competing visions over how to reshape the 17-nation economy, with Germany and its fiscally disciplined neighbors unwilling to foist additional burdens on their taxpayers.
A foretaste of that confrontation will come later today, when German Chancellor Angela Merkel travels to Rome for crisis talks with Italian Prime Minister Mario Monti, Spanish Prime Minister Mariano Rajoy and French President Francois Hollande. The configuration reflects the shifting alliances that have left Merkel fighting increasingly on her own as concerns about Europe’s economic health migrate from small countries on the periphery to larger ones in the core.
Stocks SlumpAsian stocks slumped and the dollar headed for a weekly gain against the euro after Moody’s Investors Service lowered credit ratings on 15 global banks. The MSCI Asia Pacific Index (MXAP) fell 1.1 percent at 2:10 p.m. in Tokyo, while the U.S. currency was at $1.2555 against its European counterpart.
Monti, Hollande and Rajoy, custodians of 49 percent of the 9.8 trillion-euro single-currency-region economy, have criticized Merkel’s emphasis on budget cutting and coolness toward proposals to pool European government borrowing or bank- deposit insurance.
Spain is on the front lines after the government released auditors’ estimates yesterday that its banks, reeling from the aftereffects of the real-estate bubble, would need as much as 62 billion euros to withstand a worst-case economic scenario. A formal aid request is due by June 25.
Moody’s yesterday downgraded Morgan Stanley, Credit Suisse Group AG and 13 other international banks, citing “risk of outsized losses inherent to capital market activities.”
Crisis FightingEuro governments on June 9 budgeted as much as 100 billion euros for a Spanish bank rescue, seeking to impress markets that have doubted the piecemeal crisis-fighting approach. Spanish bonds fell anyway amid investor concern that they would be outranked by official loans in the event of default. Ten-year Spanish yields have risen 39 basis points to 6.61 percent since then.
The question of who has the right to be paid back first -- the International Monetary Fund, European governments or private bondholders -- has provoked controversy throughout the crisis. A year ago, euro leaders ditched original plans to grant the permanent bailout fund seniority on any loans to Greece, Ireland and Portugal, the three countries then drawing on official aid.
Loans to Spain will start from the temporary rescue fund, the European Financial Stability Facility, before being “transferred” to the permanent fund once it is set up, Luxembourg Prime Minister Jean-Claude Juncker said. EFSF loans have not enjoyed seniority.
Regling’s ViewSpain’s package will be finalized on July 9, the same date that the permanent fund, the European Stability Mechanism, is scheduled to go into operation. Its bond-seniority clause is open to interpretation, based on a declaration by euro leaders “that the ESM loans will enjoy preferred creditor status” without a binding rule.
“This is not as important a question as it may seem,” Juncker said. The temporary fund’s manager, Klaus Regling, said the loans would increase Spain’s debt by only 10 percent of gross domestic product, making the question of preferred status “not quite as important as one gets the idea reading it every day.”
The ministers’ message to Greece’s freshly minted government was equally ambiguous. Juncker, the meeting’s chairman, summed up the discussions without repeating the indications of extended deadlines that he gave on the way in.
“There was no such message approved within the euro group, that there should be any relaxing, rather that the present targets should stay,” Estonian Finance Minister Jurgen Ligi said.
Two ElectionsGreece went seven months without a fully empowered government, enduring two elections and dodging threats of euro expulsion or departure until Antonis Samaras was sworn in as prime minister on June 20. Yesterday’s cabinet appointments came too late for new Finance Minister Vassilios Rapanos to fly to the Luxembourg meeting. A caretaker minister, Giorgios Zanias, attended instead.
Reforms stalled and the Greek privatization program was put on hold. As a result, the country needs to make up for lost time, and it would be “delusional” to bind Greece to the current conditions, an official involved in the talks told reporters in Brussels this week.
The next step is for the European Commission, European Central Bank and IMF to review the terms with the Greek government. Representatives of that “troika” will return to Athens on June 25.
Greece’s three-party coalition will seek to roll back plans to cut 150,000 public sector workers and reduce the minimum wage by 22 percent, an official from one of the parties, the Democratic Left, said yesterday in Athens.
To contact the reporters on this story: James G. Neuger in Luxembourg firstname.lastname@example.org; Mark Deen in Luxembourg at email@example.com
To contact the editors responsible for this story: Craig Stirling at firstname.lastname@example.org; James Hertling at email@example.com
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