Newsmax TV & Webwww.newsmax.comFREE - In Google Play
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
Tags: europe | ministers | spain | budget

Europe Ministers Give Spain More Time on Budget Goal

Monday, 09 July 2012 03:08 PM EDT

European ministers were set to grant Spain an extra year to reach its deficit targets in exchange for further budget savings but remained far from pinning down details of bank rescues and emergency bond-buying that are of greater concern to markets.

As finance ministers of the eurozone met in Brussels late on Monday, a top European Central Bank policymaker said the 17-nation currency area's debt crisis was now more acute than the 2008 financial turmoil that felled U.S. investment bank Lehman Brothers.

"The eurozone crisis is now much more profound and more fundamental than at the time of Lehman," ECB Executive Board member Peter Praet told a conference in Lisbon.

Eurogroup finance ministers were tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month on establishing a European banking supervisor and using the bloc's rescue funds to stabilise bond markets.

But with differences persisting between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain, EU officials said no breakthroughs were likely this week.

ECB President Mario Draghi endured at times hostile questioning in the European Parliament, notably from German, Dutch and Finnish lawmakers concerned at the prospect of European bank bailouts using taxpayers' money.

German Finance Minister Wolfgang Schaeuble sought to defuse growing opposition at home by saying it would take time to establish a European bank supervisor and only once it was fully in place might ministers decide to allow direct recapitalization of ailing banks by the eurozone's rescue fund.

Schaeuble said he expected ministers to agree on a timetable for up to 100 billion euros ($123 billion) in aid for debt-stricken Spanish lenders.

The ministers did agree to nominate Luxembourg central bank chief Yves Mersch for a seat on the ECB's six-member executive board, which has been vacant since Spain's Jose Manuel Gonzalez-Paramo's term ended in May.

A wider gathering of EU finance chiefs on Tuesday is set to ease a deficit reduction goal that has forced Madrid to make punishing cuts that are exacerbating a recession.




Spanish and Italian borrowing costs continued to rise on Monday, with Spain's 10-year bond topping the critical 7 percent level, and world shares fell with a darkening global growth outlook and little prospect of early process on the euro zone's debt crisis.

Spanish Economy Minister Luis de Guindos was to spell out to finance ministers his government's plan for a package of up to 30 billion euros over several years through spending cuts and tax hikes that are due to be announced this Wednesday.

A source close to the Spanish government said 10 billion euros of cuts would come this year and that the measures would include a hike in VAT sales tax, reduced social security payments, reduced unemployment benefits and changes to pensions calculations.

In return, the European Commission will propose easing Madrid's deficit goal for this year to 6.3 percent of economic output, 4.5 percent for 2013 and 2.8 percent for 2014, officials said.

The new targets may still prove difficult to reach, according to the draft recommendation from the European countries to Spain, loosening its goals and demanding the country be subjected to three-monthly checks.

The figures highlighted Spain's dramatic fiscal slippage due to a worsening recession. Madrid was originally meant to cut its budget shortfall to 4.4 percent this year. Prime Minister Mariano Rajoy unilaterally changed the target to 5.8 percent in March before eventually accepting an agreed goal of 5.3 percent.

The Commission will make the new proposal on Tuesday to the EU's finance ministers, who would have to agree for the targets to become binding, two officials told Reuters.

Madrid had been due to reduce its national deficit to 3 percent of gross domestic product by the end of 2013. But a deep recession has put that beyond reach.

De Guindos said he hoped to reach agreement on a memorandum of understanding on the bank rescue on Monday, which would be followed on July 20 by a final loan agreement. As part of that, Spain will create a single bad bank to house toxic assets from its banking sector.

Spain and Italy again stepped up pleas for European action to put a cap on their borrowing costs.

"At this moment the only institution that has enough money to act is the ECB," Spanish Foreign Minister Jose Manuel Garcia-Margallo said at a conference. "For that reason, the ECB should intervene in markets, it should start massive purchases of public debt so that speculators understand that they will lose their bets against the euro."

But ECB President Draghi told EU lawmakers the key to restoring market confidence was for countries in difficulty to fully implement promised structural reforms and stick to programmes agreed with Brussels and international lenders, even if they caused "social tensions".

He left the door open to a possible further cut in interest rates after last week's 25 basis point cut to 0.75 percent but voiced concern that the ECB was being expected to act "in areas which don't seem to have a connection with monetary policy's traditional remit".



Alongside Spain, eurozone ministers were also due to consider aid to Cyprus and whether to grant concessions to Greece, which has admitted it is missing its bailout programme targets.

EU leaders want to break the link between banks and sovereigns by not lumbering governments with debts for rescuing their lenders, making it harder for them to borrow.

They decided in principle on June 29 that eurozone rescue funds could be used to buy government bonds to lower borrowing costs, with conditions attached but without a full program. However Finland, and to some extent the Netherlands, have since opposed such purchases.

Helsinki insists that there was no agreement on bond-buying by the ESM in secondary markets at the leaders' summit.

Much depends on the ECB's role as banking supervisor, which will need to be grounded in European law. It falls to the European Commission to propose such legislation, which is not expected until at least September.

Draghi said it was not yet agreed which banks the supervisor would oversee, but to a large extent the ECB would be reliant on existing national expertise.

Coordinating eurozone finance ministers has been the job of Luxembourg Prime Minister Jean-Claude Juncker since 2005, but his terms ends on July 17 and ministers were due to discuss his successor on Monday. French Finance Minister Pierre Moscovici said he expected Juncker's term to be extended, depending on how long he was prepared to stay on.

Ministers were also due to receive a report on the first mission by the "troika" of the EU, the ECB and the International Monetary Fund to Greece since June 17 elections.

Highlighting resistance to harsh austerity conditions imposed on Greece, Deputy Labour Minister Nikos Nikolopoulos resigned from the new government that won a parliamentary vote of confidence only on Sunday, saying it was not forceful enough in pushing lenders to ease the bailout terms.

© 2022 Thomson/Reuters. All rights reserved.

Monday, 09 July 2012 03:08 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved