After the critical summer months, things are starting to look up for the eurozone. How long the optimism will last, however, is unclear. The decision of how to handle Greece has been postponed.
Jean-Claude Juncker, head of the Eurogroup, was in high spirits at the Friday (14.09.2012) meeting of the eurozone finance ministers in the Cypriot capital, Nicosia. Although the problems in Greece, Spain and Cyprus are still piling up, Juncker and his compatriots have been cheered by the first signs of hope.
Since the announcement by the European Central Bank (ECB) that it would buy the bonds of ailing economies, and the decision by Germany's Constitutional Court to give the green light to the ESM bailout fund on Wednesday, financial markets have been breathing a sigh of relief. Even the otherwise rather skeptical head of the International Monetary Fund (IMF), Christine Lagarde, applauded the EU for its efforts, saying she hoped the current drive could be sustained.
The EU's Commissioner for Monetary Affairs, Olli Rehn, praised the decision by the ECB to be ready to buy unlimited bonds of countries in financial trouble, if need be. He pointed out that Ireland and Portugal were both fulfilling their austerity targets.
"The program is making progress, albeit against strong headwinds," Rehn said earlier this week, adding that these were promising signs that the euro was becoming more stable. According to Rehn, the ECB decision to buy government bonds was key to the positive outlook. The only criticism of the ECB policy came from German Bundesbank chief Jens Weidmann, but he most likely found few supporters at the Cyprus talks.
ECB sticks to conditions
Mario Draghi, the much-praised president of the ECB, remained modest at Friday's press conference, first trying to say nothing at all. He then downplayed the role of the ECB, saying its importance was being exaggerated.
Draghi reminded reporters that the ECB's program was tied to very rigid and efficient conditions, and that Spain and Italy must expect strict conditions and monitoring if they expected to access ECB funds - strict conditions that the German Finance Minister Wolfgang Schäuble, in particular, has been backing.
No application from Spain, yet
Spain's finance minister, Luis de Guindos, is hoping to only negotiate a form of "overdraft" for his country. For the time being, he doesn't plan to negotiate an application to ESM rescue fund, in order to avoid outside scrutiny.
According to Juncker, Spain has said it will still achieve its budgetary objectives. At the end of the month, Spain wants to submit a national reform program, after which it will be decided if financial assistance is necessary, and how it would be implemented.
Spanish banks have already been assured 100 billion euros ($131 billion), but these can only be accessed if the ESM bailout works and an oversight by the European Central Bank is established. The ESM is now due to come into effect on October 8, but the oversight group won't be established until at least January.
Praise for the Constitutional Court
The finance ministers had nothing but praise for Wednesday's decision by Germany's Constitutional Court to authorize the ESM treaty and give the go-ahead to Germany, the eurozone's major financier, to implement it. Juncker said the 17 finance ministers would be submitting a joint declaration in the coming days.
"We have all agreed that no provision in the contract allows the limit of liability to be increased without the consent of a representative of a member country," said Juncker, satisfying one of the key demands of the judges. Germany's liability has been limited to 190 billion euros, and can only be increased with the approval of the German parliament.
Decision on Greece postponed again
Less optimistic was the Eurogroup's view of the situation in Greece. The critical report expected from the troika of international lenders, the EU, the European Central Bank and the International Monetary Fund, has been postponed to early October, and the Greek coalition government is not able to agree on the necessary austerity measures to plug the gaps in the current financial year.
The IMF's Lagarde hinted that the Greek desire to stretch the entire loan program over two years was at least being discussed. Greek Finance Minister Yannis Stournaras was not yet able to say whether his country would get the extension and a bit of "breathing room."
"We do not know yet. The proposal is on the table," Stournaras told DW. "We still have much to do." The Eurogroup plans to decide on whether Greece will get the next 31-billion aid tranche by the end of October.