A rebuke for Greece, praise for Portugal and cash for Spanish banks. Any major decision though had to be once again postponed by eurozone finance ministers meeting in Luxembourg.
Once again, eurozone finance minsters meeting in Luxembourg brought only small steps rather than major decisions. The report on Greece by the troika of the European Union Commission, European Central Bank (ECB), and International Monetary Fund (IMF) was supposed to be ready in June. Eurozone chief Jean-Claude Juncker had earlier announced the results for mid-October when European leaders are to meet for a Brussels summit. Now, the report has again been postponed until November. Juncker called on the troika and the Greek government to arrive at an agreement "as quickly as possible."
Waiting for the troika
As the government in Athens cannot agree with the troika on what measures are required to plug the holes in the Greek deficit, the report can not be completed. Without the report though, as German Finance Minister Wolfgang Schäuble pointed out, there can be no decision on whether Greece will receive the next tranche of aid money, some 31 billion euros ($40 billion). "We've agreed not to speculate," he said, adding that German Chancellor Angela Merkel's trip to Greece Tuesday was not directly linked to the delayed troika report. "The chancellor is not the troika. She visits Greece just like she also visits other European countries," Schäuble said in Luxembourg.
Greek Prime Minister Antonis Samaras in a weekend interview with German daily "Handelsblatt" warned that his country could be completely bankrupt by the end of November should the next chunk of aid money not come. His finance minister, Ioannis Stournaras, demanded once again more time for Greece at the Luxembourg meeting. He did not get any promises, however. His Luxembourg colleague Luc Frieden said he did believe that in the end, Greece would be somehow helped. "Greece is still a member of the eurozone. And I believe that this will not change. We have to do this work seriously. If we have problems in a country like in Greece, then we have to wait until we have verifiable reports," he said.
But the head of the EU task force for Greece, Horst Reichenbach, said in Greece that he had little hope for the Greek banking sector. Supplying small and medium sized companies with loans didn't work, he said. Reichenbach is consulting the Greek government on behalf of the EU Commission. He did say progress was being made in terms of bringing in back-taxes.
Money for Spanish banks
Speculation that Spain was on the brink of applying for an EU bailout from the newly launched European Stability Mechanism (ESM) was rejected by Spanish Finance Minister Luis de Guindos. Germany's Schäuble was also confident that Spain would be able to recover without outside help. "I'm always listening closely to what the Spanish government says. And I can confirm that the government says the country doesn't need a bailout. Spain is doing everything that's necessary - in financial policies and structural reforms. The problem that Spain has is with its banks, and that dates back to the real estate bubble of the past years."
Record unemployment, a shrinking economy and growing protests are making things difficult for the government in Madrid. The interest it had to pay on bonds had recently dropped to 5.69 percent, which is a rate considered only just bearable. London chief economist of bank Unicredit, Erik Nielsen, described the situation in a recent analysis as one that most likely would persist for another months. Only if the interest rate Madrid had to pay on bonds was to rise, would Spain need to apply for a bailout, Nielsen wrote.
The planned cash injections for ailing Spanish banks are making progress. After Spanish Finance Minister de Guindos presented a convincing reform plan for the country's banking sector, the other member states agreed to help Madrid's own bailout fund (FROB). The first payments are to take place by the end November and are to go via the newly created rescue fund ESM.
A direct bailout for Spanish banks - without involvement of Madrid - will only be possible once a joint European banking supervision body has been established. However, this will be set up by January 2013 at the earliest.
The 17 finance ministers could discuss the issues, but could not make and hard and fast decisions on Greece and Spain. Cyprus, which is in need of some 10 billion euros, has not yet applied for an official bailout as the country is shying away from the tough reform conditions that would come with EU money. Austrian Finance Minister Maria Fekter was nonetheless cautiously optimistic: "We have come much closer to a stable situation," she said. "We haven't solved the problems yet though. We still need to stabilize the banks in Spain. We still have to see how Greece is coping with the fulfilling its reform obligations. There probably will be a bailout request from Cyprus. Slovenia too is in difficulties. And we have to make sure that our debts are not getting out of control but rather get reduced."
After a positive report by Troika on Portugal, the eurozone finance minister gave the green light for paying out the next tranche of loans to Lisbon. EU diplomats described the process as mere routine. It was the fifth time the Troika was in Portugal and attested to the country's progress, eurozone chief Juncker said. The country is to get some 4.3 billion euros by the end of the year. At the same time, Lisbon has been granted one more year to balance its budget.