Eurozone finance ministers and the International Monetary Fund held a "thorough and robust" debate on Greece, but failed to make significant progress in deciding how best to get the country back on track with its bailout program.
Ministers spent more than two hours discussing an upcoming report by the European Commission, the European Central Bank and the IMF — known as the troika — on Greece's debt-reduction program, with divergences emerging inside the eurozone and with the IMF over how best to proceed, officials said.
While Jean-Claude Juncker, the chairman of the eurozone's 17 finance ministers, and IMF Managing Director Christine Lagarde both said they were pleased with Athens' progress, they said more still needed to be done. Further discussion will take place once the troika report is published, probably next month.
"It was a thorough and robust debate," one eurozone official said describing in diplomatic terms a meeting that others said was at times intense and ultimately inconclusive.
One point of contention was whether to grant Athens up to two more years to meet its budget and other targets. While the IMF is believed to favor leeway, countries such as the Netherlands and Finland have concerns about offering more time.
"We were happy to learn that substantial progress has been made over the last weeks," Juncker told reporters after a five-hour meeting which also discussed Portugal, Spain, Cyprus and issues related to tighter banking supervision in the eurozone.
"We called on the troika and Greece to finalize their negotiations and agree on ways to close the fiscal gap for 2013 and 2014 as soon as possible," he said, adding that before any more money could be paid to Greece, it needed to "demonstrate its strong commitment" to its austerity program.
In March, the troika agreed on 89 "prior actions" that Greece must take to get its budget deficit down and overhaul its economy. Most have already been achieved, but Juncker said Athens now had only until Oct. 18 to complete the task.
"We will of course continue to monitor the situation closely and are ready to reconvene once the review process by the Troika has been completed," he said.
Lagarde also struck a positive note, saying Greece had clearly stepped up its efforts, but she said further application was needed if the country was going to bring its debt down from around 170 percent of GDP to a manageable level.
"More needs to be done on all fronts - fiscal, structural reforms, financing, debt — clearly we will be working on that that," she said, adding that the discussion would continue at a G7 and IMF annual meeting in Tokyo later this week.
NO BAILOUT FOR SPAIN
While Greece, the country where the eurozone debt crisis began nearly three years ago, remains the most complicated puzzle to unlock and perhaps the greatest source of contagion risk for the region, Spain is a deepening problem.
The eurozone has already set aside 100 billion euros for Spain to recapitalize its banks, only around 40 billion of which is expected to be used in the coming weeks, but there are also expectations in financial markets that Madrid will also have to request a government bailout in the coming weeks or months.
German Finance Minister Wolfgang Schaeuble said as he arrived for the meeting that Spain was not asking for help and did not need it, a message reiterated by other ministers. But Prime Minister Mariano Rajoy has said he may have to request help if Spanish borrowing costs remain too high for too long.
Spanish 10-year bond yields are currently at around 5.75 percent, a level that is sustainable for the government. But a borrowing cost substantially above 6 percent for an extended period of time could force Rajoy's hand.
"I think we should deal with such a request when it comes, but so far the Spanish government is undertaking reforms which go in the right direction," Luxembourg Finance Minister Luc Frieden said as he arrived at the meeting.
Juncker said there had been no discussion about Spain needing a sovereign bailout on top of its banks.
As well as Spain's broad financial needs, Monday's meeting touched on the budget goals presented by Rajoy's government last month, which the European Commission has yet to endorse.
The Commission will publish its twice-yearly economic forecasts on Nov. 7 and some officials have said it may conclude Spain can't meet its budget targets, which are based on the economy contracting by an optimistic 0.5 percent next year.
The IMF forecast of a 1.2 percent recession may be revised further downwards on Tuesday.
With the eurozone countries involved in a lengthy process of trying to define how best to overhaul the monetary union that binds them, meetings of finance ministers increasingly involve broad discussions rather than specific decision-taking.
However, the one firm action taken on Monday was the unveiling of the European Stability Mechanism (ESM), a 500 billion euro rescue mechanism for the 17 eurozone countries.
The ESM, which replaces the temporary EFSF, will be used to lend to distressed eurozone sovereigns in return for strict fiscal and structural reforms that aim to put economies that have lost investor trust back on track.
"The start of the ESM marks a historic milestone in shaping the future of the European monetary union," the fund's chief executive, Klaus Regling, told reporters
"The euro area now is equipped with a permanent and effective firewall, which of course is a crucial component in our strategy to ensure financial stability in the eurozone."
The fund's lending capacity will be based on 80 billion euros of paid-in capital and 620 billion of callable capital, against which the ESM will borrow money on the market to lend it on to governments cut off from sustainable market funding.
From Monday it has a capacity of 200 billion euros. It will reach its full capacity gradually by 2014.
© 2016 Thomson/Reuters. All rights reserved.