Ireland praised on progress in EU-IMF programme

Friday 14 September 2012 22.21
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Jean Claude Juncker and Olli Rehn praise Irish efforts
Jean Claude Juncker and Olli Rehn praise Irish efforts
Michael Noonan in Cyprus for meeting with EcoFin ministers
Michael Noonan in Cyprus for meeting with EcoFin ministers
Spain says it will set clear deadlines for structural reforms
Spain says it will set clear deadlines for structural reforms
Lagarde suggests that Greece may get more time to make cuts
Lagarde suggests that Greece may get more time to make cuts

The head of the eurogroup of finance ministers has congratulated the Government for the progress it has made in implementing the EU-IMF programme and re-entering the bond markets.

Jean Claude Juncker was speaking in Nicosia after the first session of an informal meeting.

He said the question of securing a deal on the reduction of Ireland's banking debt would be discussed again in upcoming meetings.

EU Commission Vice-President Olli Rehn said that the quality of the outcome of those negotiations is more important than the time schedule. 

Mr Rehn said Ireland is going through an economic rebalancing which was necessary.

Ireland was also praised, along with Portugal, at the meeting in Cyprus by the Managing Director of the International Monetary Fund, Christine Lagarde.

Jean-Claude Juncker also said at today's meeting that Greece will not learn whether it has done enough to get its next batch of bailout cash for at least a month. He said that decisions on Greece will not likely be made until the second half of October.

The Greek government is trying to cobble together an €11.5 billion austerity package to satisfy its international creditors.

The country is currently being assessed by debt inspectors and Juncker doubts their report will be ready in time for a decision in the first half of October.

Juncker also said he was encouraged by remarks from Spanish Economy Minister Luis de Guindos that the country would do more to reach its deficit targets.

Pressed on bailout, Spain pledges reform timetable

Spain, deflecting pressure to spell out whether it needs more European financial support, told euro zone finance ministers today that it will set clear deadlines for structural economic reforms by the end of the month.

Madrid's borrowing costs have fallen sharply since the European Central Bank said it was ready to buy Spanish bonds but big borrowing needs before the year-end and a deepening recession mean most analysts and policymakers believe it only a matter of time before it will require help.

"We will adopt a new set of reforms to boost growth... It will be in line with the recommendations of the European Commission," Economy Minister Luis de Guindos told journalists after meeting his peers in Cyprus.

However in Madrid, Deputy Prime Minister Soraya Saenz de Santamaria said the cabinet would simply issue a new calendar on September 28 for enacting reforms announced in July. Her comment appeared to undercut De Guindos' pledge in another example of communications problems that have dogged Spain's government.

The timing suggests a request for aid may not be far away, although de Guindos insisted the package was unrelated to any possible bailout terms. Several euro zone officials have speculated Spain could apply in time for the next meeting of euro zone finance ministers on October 8.

Madrid has so far resisted austerity conditions that go beyond the EU policy recommendations it is already implementing, while north European creditors led by Germany are adamant that any aid would come on tougher terms.

The ECB has said a request for help from the euro zone's bailout fund, and the negotiation of strict, time-bound policy conditions and monitoring, is essential to trigger its bond-buying intervention in the secondary market.

ECB President Mario Draghi, who attended the Nicosia talks, stressed any bond-buying would require strict conditionality. Spain's 2013 budget and a detailed audit of the capital needs of its banking sector are both due on September 28.

For the first time in months, euro zone finance ministers met at a moment when market pressure for immediate action to solve the sovereign debt crisis is easing, rather than mounting.

The ECB's announcement that it could buy unlimited amounts of Spanish bonds, should it agree a programme with the euro zone bailout fund, brought Spanish 10-year bond yields down from 7.64% in July to 5.62% today. Italian yields have fallen to around 5% and the euro rose above $1.30 after the US Federal Reserve announced a new programme of asset purchases to support the economy.

That increases the temptation for Spain, and EU paymaster Germany, to try to get by without an assistance programme that would be politically difficult in both Madrid and Berlin. Each time market stress has eased in the nearly three-year crisis, German leaders have said they see no urgent need to act.

"There is no more room for complacency than there was six months ago, but we are moving in the right direction," European Economic and Monetary Affairs Commssioner Olli Rehn cautioned.

Spain is reluctant to ask for help because Prime Minister Mariano Rajoy fears a political backlash at home, but he may have no choice given Madrid's borrowing needs. Rajoy reaffirmed this week he would not touch pensions, but EU officials say a freeze on inflation adjustments would not be the same as a cut.

A German official said Berlin did not want to see Spain pushed into an unnecessary rescue application at a time when its funding conditions were improving, adding that a Spanish bailout was not inevitable.

More time for Greece?

International Monetary Fund chief Christine Lagarde said it was worth considering giving Greece more time to make the cuts demanded of it by its bailout programme.

EU officials have said that Athens is way behind on its debt-cutting programme but, having made strenuous efforts to shore up Spain and Italy, it would make no sense to tip Greece into default now and plunge the currency bloc back into chaos.

"It seems to us quite clear that Greece has already produced a huge effort but will have to continue to do so," Lagarde said. "And the target when it comes to achieving debt sustainability is very high, so there are various ways to adjust: time is one and that needs to be considered as an option."

International lenders are likely to reach final decisions on the revised financing programme for Greece in the second half of October, Greek Finance Minister Ioannis Stournaras said.

Austrian Finance Minister Maria Fekter said Greece could be given more time to reach its fiscal targets but not more money, a view shared by the Dutch. She also said the Cyprus had told the meeting it would not be able to continue without financial assistance.

Another euro zone official said Spain should have euro zone support ready when international lenders present their report on Greece - the country where the debt crisis started - in October, because it will make grim reading and could upset markets, boosting Spanish and Italian borrowing costs.

Draghi said the ECB's policy decision was just one of a number of measures which had turned market sentiment. "Many things seem to fall into place of late: progress in the euro area governance, significant progress at national level in pursuing the right policies in all euro area countries and now you have a fully effective backstop mechanism that is meant to remove to the tail risk from the euro area," he said.

"I think it is a combination of all these elements that have produced the positive effects that we have seen on financial markets," he added.

Markets have rallied after the German constitutional court cleared the way to set up the €500 billion permanent euro zone bailout fund ESM, pro-European parties won elections in the Netherlands and the euro zone is moving towards a banking union with the ECB as the single supervisor.

But many policymakers and market analysts believe that for yields to fall further, or even stabilise at these levels, the ECB would have to back up its words with action.