July 28, 2021

European Finance Ministers Approve Billions in Loans for Greece

Speaking after the meeting, Jean-Claude Juncker, who heads the euro zone finance ministers, said they had agreed to release their portion of an 8 billion-euro loan to Greece. The International Monetary Fund is expected to sign off on its share — roughly one third — early next month, making the loans available by the middle of December.

The ministers also agreed on rules to increase the firepower of their bailout fund, the European Financial Stability Facility, and will be able to offer insurance to those buying the bonds of nations like Spain and Italy. In these cases, insurance certificates — attached to make bonds more attractive — will themselves be tradable, said Klaus Regling, who heads the bailout fund. The fund will also seek investment from sovereign wealth funds and other non-European sources.

Though a goal of 1 trillion euros, or $1.3 trillion, was set for the expanded bailout fund, ministers acknowledged that this was now unlikely, and no figure was given at Tuesday night’s news conference.

Luc Frieden, Luxembourg’s finance minister, said the figure of 1 trillion euros “will be very difficult to reach, in view of the changed market circumstances.”

“I think the E.F.S.F. alone will not be able to solve all the problems,” Mr. Frieden said.

“We have to do so together with the I.M.F. and with the E.C.B., within the framework of its independence,” he said, referring to the European Central Bank.

The six hours of talks here highlighted the contrast between Europe’s tortuous decision-making and the breakneck speed with which financial markets have been pushing the currency zone toward a moment of truth.

While proposals have been working their way through Europe’s convoluted procedures, risks have grown that the debt crisis will plunge Europe into a steep recession or lead to a fragmentation of the currency union.

On Tuesday, the borrowing costs of Italy, the euro zone’s third-largest economy after Germany and France, reached nearly 8 percent, a record since the inception of the common currency in 1999. After the discussions late Tuesday, Olli Rehn, European commissioner for economic and monetary affairs, said that because of the economic slowdown, there would have to be tougher measures if Italy was to reach its financial goals.

Mr. Juncker said the ministers would explore “further options” to leverage the bailout fund.

A month after European Union leaders announced a plan to resolve the crisis, most of those decisions have either been delayed or overtaken by events, said Nicolas Véron, a senior fellow at the Bruegel economic research institute in Brussels. Plans to increase the power of the bailout fund, were now “too little too late,” Mr. Véron said, adding that Europe’s policy errors were caused by a “systemic failure of our institutional framework.”

France and Germany said they planned to break the downward spiral by outlining a new push toward a fiscal union, with stricter rules against budget “sinners,” before a meeting of leaders next week in Brussels.

The details of how these ideas will be pushed through remain highly uncertain, but Mr. Juncker said that discussions on tightening the rules would include the possibility of changing the European Union’s governing treaty — a slow and cumbersome process.

Germany is determined to toughen the euro zone rules significantly before it contemplates any additional far-reaching changes to help shore up the currency. So far, Berlin has resisted both greater intervention by the European Central Bank, which might stoke inflation, as well as the short-term introduction of common euro zone bonds.

Some officials hope that agreement in principle on new fiscal rules can encourage the central bank to intervene more actively to help Italy and Spain without risking criticism from Berlin. In recent days, senior figures in Austria, Finland and the Netherlands have declined to rule out an enhanced role for the bank.

The latest discussions illustrate the time it takes to impose decisions in Europe. Plans to expand the bailout fund, and allow it more freedom, were agreed to in July, and a decision was made in October to leverage its power to around 1 trillion euros. The decision on whether to release an international loan of 8 billion euros to Greece was also made in October, but carrying that out was held up when the former Greek prime minister, George A. Papandreou, suggested holding a referendum on the bailout package. The idea was later scrapped, and Mr. Papandreou resigned.

The finance ministers agreed Tuesday to release that 8 billion-euro installment, said an official who requested anonymity because an announcement had not yet been made. The money, part of the initial 110 billion-euro bailout extended to Greece last year, also must be approved by the International Monetary Fund.

Bank recapitalization, the third pillar of the October meeting, was not a main area of discussion on Tuesday, but there are worries that this requirement may impose burdens on banks that make them less likely to lend.

Article source: http://feeds.nytimes.com/click.phdo?i=e2fb4e96eb311b604fa61e1a8de99323

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