Euro Crisis Tentative Victory Aired Amid Irish Return
European finance chiefs said Ireland and Spain will soon be weaned off aid and Greece’s mounting bills will be paid, declaring a tentative victory after almost four years of turmoil that came close to shattering the euro.
Ireland’s return to market financing will be decided next month and the country may be robust enough to fend for itself without a follow-up credit line. Spain is determined to get by without additional support, the officials said.
“Both programs are on track for a successful conclusion,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters late yesterday after finance ministers from the 17 euro countries met in Luxembourg. “Conditional financial support has helped to deliver an economic turnaround in the two countries.”
As Europe crawls out of its debt crisis, the U.S. risks tumbling into one, with political bickering in Washington threatening to lead to a U.S. government default that could inflict far more damage on the world economy than the euro zone’s troubles.
European officials are keen to present Ireland, recipient of 67.5 billion euros ($92 billion) in loan pledges in 2010, as a success story that vindicates the German-inspired policy of offering aid only in exchange for deep cuts in public spending.
Europe has eased the austerity demands since the start of the crisis, and Germany may retreat further as Chancellor Angela Merkel negotiates with her party’s traditional Social Democratic rivals over forming a new government. Those talks kept Finance Minister Wolfgang Schaeuble away from yesterday’s euro meeting.
Ireland’s 10-year bonds now yield 3.68 percent, lower than the 4.25 percent of Italy, a country not on an aid program. Irish bonds yield 1.8 percentage points more than German bonds, down from a high of 11.4 points in July 2011.
Ireland will “evaluate all options in relation to exiting our bailout program,” European Affairs Minister Paschal Donohoe said. “Our commitment is to sustainably and fully exit from the program.”
Finance ministers gave no indication whether Ireland will make a clean break with three years of dependency or arrange a credit line to tap in case its interest rates shoot back up, whether due to a domestic hiccup or global economic headwinds.
“It’s up to the Irish authorities to decide if they fully want to exit or if they want some support to smooth their market entry,” European Central Bank Executive Board member Joerg Asmussen said. “That’s up to them. But it’s a clear success story, Ireland.”
Spain expects to conclude its bank-aid program on time at the end of the year after drawing 41.3 billion euros of a 100 billion-euro credit line granted by the euro rescue fund, Economy Minister Luis de Guindos said. Still, the International Monetary Fund last week said about one-fifth of combined corporate loans in Spain, Portugal and Italy are at risk of default.
Spanish Prime Minister Mariano Rajoy is relying on exports and tourism to revive the fourth-largest economy in the euro region as the deepest budget cuts in the nation’s democratic history continue to weigh on domestic demand.
Progress in Ireland and Spain may ease the handling of Greece, the trigger of the crisis, now with additional financing needs after winning 240 billion euros of loan pledges since 2010. The ECB’s Asmussen tabbed Greece’s funding gap at 5 billion to 6 billion euros in the second half of 2014. The IMF in July estimated next year’s gap at 4.4 billion euros.
Greek Finance Minister Yannis Stournaras put the extra needs in 2014 at 4.5 billion to 5 billion euros. He also contested Asmussen’s assertion that Greece has to close “significant” holes in its 2014 budget plan in order to continue to qualify for disbursements. “There is no significant fiscal gap,” Stournaras said.
Dutch Finance Minister Jeroen Dijsselbloem, the chairman of yesterday’s meeting, said today in an interview with Dutch television RTLZ that Asmussen’s assertion about the Greek financing gap in the second half of next year was “plucked out of thin air.”
European creditors aim to work out in December how to fill the hole, though a final decision may wait until January, said Dijsselbloem. The IMF requires a 12-month financing guarantee in order to continue its own loans to Greece. Dijsselbloem ruled out a “haircut” on what Greece owes to official creditors and pushed a decision on other forms of debt relief into next year.
“There is no support in the Eurogroup for a debt cut, but there are other ways of dealing with a debt problem, if it were to come out in the calculations, during the course of 2014,” Dijsselbloem said.
Prime Minister Antonis Samaras, Greece’s fourth leader in as many years, is counting on creditors to offer further relief as a reward for the country’s progress toward fiscal rectitude. With little domestic appetite for further austerity, Samaras can play on two advantages: he expects a budget surplus excluding interest payments in 2013, a year ahead of schedule, and predicts economic expansion in 2014 for the first time since 2007.
“Greece is never easy,” Rehn said.
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