Spanish concerns

Eurozone finance ministers appear to be relaxing somewhat, now that the immediate crisis in Greece has abated, for now. The conditions for the release of its second bailout package have been met, according to Jean-Claude Juncker, head of the Eurogroup.

"There is no doubt that the second bailout package for Greece has been approved and is on the way to being implemented," said Juncker at a eurozone meeting in Brussels on Monday evening.

The final decision will likely take place on Wednesday, as some member countries still face parliamentary hurdles. Among the conditions for the second bailout package was an extensive debt wavier by the private sector, which should see Greece's massive debt drop to 117 percent of gross domestic product by 2020. Until now, expectations had been at 120.5 percent.

Meanwhile, Greece's Finance Minister Evangelos Venizelos said Monday that 96 percent of the country's creditors had now agreed to the debt waiver, and he was waiting for the remaining 4 percent to follow suit. “I'm very optimistic that there will be a full participation from the private sector and a return to growth in Greece,” he said.

Spain misses its targets

Greece still has a long way to go before it will be able to find its economic footing. But in the meantime, Spain has emerged as another problem country. Last year, Spain was facing a huge deficit of 8.5 percent of GDP, and the European Commission had ordered the country to meet a 4.4 percent target for 2012.

Madrid has proposed a target of 5.8 percent, something neither the Commission nor the eurozone members will accept. They are now pushing for an additional reduction of 0.5 percent, according to EU Economy Commissioner Olli Rehn.

Is the fiscal pact being watered down?

The demand came as a surprise, but of course the new target is softer than the previous one. German Finance Minister Wolfgang Schäuble indicated that this was justified. He added that Spain had made great progress and "most certainly" would not become a new Greece.

His Austrian colleague Maria Fekter took a different stance. She warned that the new budget rules of the fiscal pact should not be watered down right away. Spain should not expect any relief for the 2013 budget year, she said. "The first monitoring step must be strict so that everybody recognizes we're serious about this. There can't be any exceptions," she said.

During the Brussels meeting, the Spanish government had to commit to reign in its budget deficit by 2013 below the three percent of GDP allowed under EU rules - an ambitious target.

Germany opposes stronger “firewall”

It remains unclear just how big the euro rescue fund, the temporary EFSF (European Financial Stability Facility) and the permanent ESM (European Stability Mechanism), is to be in future. Referred to as firewalls by Brussels diplomats, these mechanisms are to prevent contagion spreading from Greece to Spain, for instance. The ESM, which is to be established this summer, is to replace the EFSF.

Irish Finance Minister Michael Noonan, whose country is already being propped up by the EU, would like to tap into the fund. He says either the EFSF is beefed up or it is extended to run parallel to the ESM. "We are interested in stability. We're concerned about contagion. Firewalls will be crucial in future."

While a string of countries, EU institutions and the IMF support this proposal, Germany remains opposed because it would be footing most of the bill.

Controversial financial transaction tax

Meanwhile Wolfgang Schäuble is trying to muster support for a financial transaction tax, preferably throughout the EU. "We aim to introduce an efficient financial transaction tax in the EU as soon as possible. If this is not achieved we will of course consider alternatives,” said Schäuble. 

It looks like he will have to do just that because it's not only Great Britain and Sweden who are opposed but also members of the eurozone such as Luxembourg and Ireland.

The incumbent's kidney stones

Meanwhile the search for a successor for Jean-Claude Juncker is becoming more pressing by the day. The chairman of the eurogroup wants out after his mandate ends in June. Schäuble says this influential post should be filled by a country with the top credit rating AAA, which - Luxembourg aside - only leaves Germany, Finland and the Netherlands.

With the Dutch finance minister's refusal on Monday and the Germans' reluctance to reinforce European perceptions of Berlin's growing influence, it's possible the post will go to the Finnish prime minister and former finance minister Jyrki Katainen.

The only problem is that EU economic affairs chief Olli Rehn is also a Finn. Perhaps the ministers will try and sway Juncker to carry on for an interim period after all. But he half jokingly complained of kidney stones during the press conference - maybe a sign that he's had enough of his job.

Author: Christoph Hasselbach / cmk, nk
Editor: Joanna Impey