Euro zone finance ministers will discuss ways to leverage
their EFSF bailout fund on Monday and put pressure on Greece to implement agreed structural reforms
to try to get its economy growing again, euro zone officials said.
Finance ministers from the 17
countries sharing the euro meet in Luxembourg after Athens acknowledged it
would miss fiscal targets set as conditions for continued emergency funding
this year from the European Union and International Monetary Fund.
Greece said on Sunday that the
budget deficit this year would be 8.5 percent of gross domestic product,
missing a 7.6 percent target agreed in the bailout that saved it from
bankruptcy. It would also miss next year's deficit target in terms of
percentage of GDP -- 6.8 percent instead of 6.5 -- but would meet it in nominal
terms.
Athens blames its failure to
meet EU/IMF deficit targets on the worse-than-forecast contraction of the economy,
while its lenders say failure to push through structural reforms is also
largely to blame.
"We will be pressing the
Greek finance minister to do some more tough talking
about the implementation of reforms at home," said one euro zone official
involved in the preparation of the meeting.
"Greece would be well
advised not only to announce but also to implement reforms," the official
said.
To avoid bankruptcy, Greece
needs the next, 8 billion euro ($11 billion) tranche of emergency aid from the
EU and the International Monetary Fund -- otherwise it could run out of money
to pay state wage bills within weeks.
Euro zone ministers will not decide
on Monday whether the next tranche should be paid out, leaving that decision to
the next meeting on October 13.
Officials expect the next
tranche will be paid, because the euro zone will not be ready to cope with the
fallout of a Greek default until its bailout fund, the European Financial
Stability Facility (EFSF), gets its new powers of market intervention ratified
in the next two weeks.
Even then, however, while the
440 billion euro fund will be able to buy government bonds from the market, recapitalize banks
and extend precautionary credit to sovereigns, it may not have enough cash to
cope with all the financing needs.
Euro zone ministers will
therefore also discuss on Monday way to increase the firepower of the fund
through leveraging, without increasing guarantees that back the fund's
borrowing, but no decision is expected yet.
"The ministers on Monday
will come closer to a solution, but not to a conclusion," the euro zone
official said.
The leveraging idea,
suggested by the United States, has some opponents in the euro zone, who fear
it could lead to higher liabilities for euro zone countries above the 780
billion euros in current EFSF guarantees, or downgrades of either the AAA-rated
EFSF or its triple-A guarantors.
Officials said only options
that would not lead to a downgrade would be examined.
Among the ideas under
consideration is allowing the EFSF to refinance itself at the ECB's liquidity
operations for banks. The EFSF could also guarantee to cover a percentage of
potential losses investors could incur in case of a hypothetical sovereign default.
Any solution, however, should
not require another round of ratification, officials said, because
policy-makers realized how difficult and lengthy the process was given the
growing opposition to bailouts in many euro zone countries.
The ministers will also decide
who will replace Juergen Stark on the European Central Bank Executive Board.
Stark resigned citing personal reasons although sources said it was mainly over
his opposition to the ECB undertaking on the task of buying government bonds.
Ministers will discuss changes
to euro zone economic governance, prepared for the October 17 summit of EU
leaders by the European Commission, the Eurogroup and the President of the
European Council Herman van Rompuy.
(Reporting by Jan
Strupczewski; Editing by Ruth Pitchford)
Source : Reuters
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