EU ministers meet to solve Spain crisis
Tue, 10 Jul 2012 7:18a.m.
By Don Melvin
European Union finance ministers will work to secure Spain's teetering economy in meetings in Brussels on Monday and Tuesday, with progress expected on the bailout loan for the country's stricken banks and a relaxation of the government's financial targets.
The 17 countries that use the euro have committed to support a loan for Spain's banks of up to €100 billion (NZ$155 billion), but the precise amount needed may not be known until September, when the results of all the bank inspections are in, Simon O'Connor, an EU spokesman, said Monday.
Monday evening, the so-called eurogroup of finance ministers will attempt to reach an agreement on what conditions will be attached to Spain's bank bailout loan, which will codified in a "memorandum of understanding" to which the country must agree. The 17 ministers - some of whom will need to get approval of the agreement from their parliaments - will probably meet again, later in July, to give final approval to that document.
Spain - the fourth-largest economy in the eurozone - has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry weighed down by toxic loans and assets from a collapsed property market. There are fears that should Spain need a bailout of its own, the eurozone would struggle to finance it, pushing the region further into recession.
"I expect that already today we will have strong progress on the Spanish situation," French Finance Minister Pierre Moscovici said Monday on his way into the meeting.
Irish Foreign Minister Michael Noonan said a draft communique regarding Spain was being circulated. And German Finance Minister Wolfgang Schaeuble said he expected results Monday. "I think we will agree on a binding framework and a schedule," he said.
The Spanish foreign minister, Luis de Guindos, also said a preliminary agreement was likely.
"We will be analysing what the implications are for the Spanish side. We will also hear about the measures we are taking and will take," de Guindos said, apparently alluding to a likely increase in VAT tax, a levy on goods and services.
He said there was also "rather broad agreement" on the general terms of bank bailout. "We expect to seal it this evening and tonight," and it will be formally approved at another meeting of eurozone finance ministers, expected on July 20, he said.
Following Monday's meeting, finance ministers from all 27 European Union countries, in a choreographed companion manoeuvre, will meet Tuesday to consider giving Spain an extra year - until 2014 - to meet its budget deficit target of 3 percent. The European Commission, the EU's executive arm, has formally endorsed that proposal.
The eurogroup ministers will also meet Greece's new finance minister, Yannis Stournaras, for the first time Monday for preliminary discussions on whether to adjust conditions accompanying the country's bailout.
Officials say no formal decisions are expected from the meeting Monday. But Moscovici said he was optimistic the EU would emerge from its financial crisis, in light of action taken toward further economic and political integration at a summit meeting of EU leaders last month.
"I remain very confident that ... the European Council for the first time addressed the globality of the solution, including the problems of development, financial stability, the future, integration, solidarity - the European Union that we want," Moscovici said.
In an appearance Monday before a committee of the European Parliament, Mario Draghi, the chief of the European Central Bank, also exuded optimism. Banking union in the European Union, he said, would be achieved.
"The first thing to be created will be the supervision. We are talking about the long-term sustainability of the European monetary union. We are going as fast as we can. It is better to do things right than in a hurried fashion. We certainly want to see this thing wrapped up by the end of the year," he said, referring to banking oversight.
"By the end of this year we will have something that is not perfect, but achievable," he said.
But Dutch Finance Minister Jan Kees de Jager said the EU's firewall funds cannot directly bail out banks until there is a banking supervisor - and Spain's banks need money now, which can only be loaned through the government, increasing the public debt.
"Then the government must stand as guarantor," De Jager said. "That way Spain runs a risk, that's true."
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