Eurozone finance ministers launched their permanent 500 billion euro bailout fund on Monday but said Spain, the country widely expected to be first to draw on it, was taking steps to overhaul its economy and did not need a bailout for now. Arriving at a meeting in Luxembourg also set to discuss Greece and differences over how to recapitalise Europe''s wobbly banks, German Finance Minister Wolfgang Schaeuble said Madrid had made clear it wanted no assistance.
"Spain needs no aid programme. Spain is doing everything necessary, in fiscal policy, in structural reforms," he told reporters as he arrived for a gathering that will also discuss plans to establish a single supervisor for eurozone banks. "Spain has a problem with its banks as a consequence of the real estate bubble of the past years," he said. "That''s why Spain is getting (EU) help with banking recapitalisation."
Luxembourg Finance Minister Luc Frieden took the same line but added that if Spain were to make a request for aid beyond the 100 billion euros already earmarked to recapitalise its banks, it would be examined. As well as Spain''s broad financial needs, Monday''s meeting was expected to discuss the budget goals presented by Madrid last month, which the European Commission has yet to endorse.
The Commission will publish its twice-yearly economic forecasts on November 7 and some officials have indicated that it may conclude Spain can''t meet its budget targets, which are based on the economy contracting by just 0.5 percent next year. The IMF forecast of a 1.2 percent recession may be revised further downwards on Tuesday. Evidence that Spain can''t meet the targets it has set is likely to undermine market confidence and drive up Madrid''s borrowing costs, which are currently hovering around a manageable 5.75 percent. Yields on 10-year bonds above 6 percent for a sustained period could force a request for help.
"I think we should deal with such a request when it comes, but so far the Spanish government is undertaking reforms which go in the right direction," Luxembourg''s Frieden said. Many in the financial markets are convinced Spain will not be able to meet its sovereign funding needs at an affordable cost without eurozone and European Central Bank support, especially with several regions requiring a bailout from Madrid.
As well as Spain, ministers will discuss the situation in Greece, where intense negotiations continue between the government and the ''troika'' of inspectors from the Commission, the ECB and the IMF over budget cuts for 2013-2014. Jean-Claude Juncker, the chairman of the Eurogroup, said no developments were likely at least until the troika finishes a report on Athens'' debt situation and whether it is survivable. That report is now expected in early November. "I don''t think that we will have any major decisions on Greece," Juncker said. Asked whether a decision on Greece could be expected soon, he replied: "Hope never dies." Monday''s meeting will also discuss plans for the ECB to be given responsibility for supervising all eurozone banks and the idea of creating a single budget for eurozone countries.
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