Spain struggles to avoid bail-out
Spain is on the brink of asking for financial assistance from the eurozone, although Prime Minister Mariano Rajoy has denied that a request is imminent.
An application for assistance from the European Stability Mechanism (ESM) is unlikely to come in time for Monday’s (8 October) meeting of eurozone finance ministers, but could be ready for discussion when leaders of the European Union’s member states meet for a European Council in Brussels on 18-19 October. Germany continues to urge Spain to look at alternatives before requesting external help.
Following a meeting between Rajoy and the leaders of Spain’s regions in Madrid on Tuesday (2 October), the prime minister was asked whether a bail-out request was likely in the near future. His response was: “I say ‘No’.”
Rajoy is struggling with one of Europe’s largest deficits and an economy in recession. Spain has already been granted up to €100 billion from its eurozone partners to help recapitalise its banking sector, but has so far refused to accept the need for help for the wider economy.
Greece will also be on the agenda of Monday’s meeting of eurozone finance ministers as negotiations between the country’s authorities and the ‘troika’ – representing the European Commission, European Central Bank and International Monetary Fund – continue to raise problems.
Greece has been waiting for the next €31bn tranche of its bail-out since June, when it was scheduled to be paid. But this will not be forthcoming until eurozone finance ministers discuss the troika’s report and the troika and Greece approve austerity measures worth €31bn.
The meeting of the eurozone’s finance ministers – and the wider gathering of all 27 in the European Union the following day – will discuss Herman Van Rompuy’s provisional blueprint for closer economic and monetary union, which he is to present to leaders at this month’s summit.
The inaugural meeting of the board of the European Stability Mechanism (ESM) – the eurozone’s €500 billion rescue fund – will take place on Monday (8 October) before the main gathering of eurozone finance ministers.
The birth of the ESM has been made possible by Germany’s ratification of the necessary legislation on 27 September – which was made possible when the country’s constitutional court ruled earlier in the month that the mechanism was permissible under German law.
The following day (9 October), finance ministers of all 27 EU member states will discuss two pieces of draft legislation that are held up amid difficult negotiations between member states and the European Parliament: the ‘two-pack’ rules on economic governance and a proposed regulation and directive on bank capital requirements (CRD IV).
They will also consider the European Commission’s controversial plan for the European Central Bank to become a eurozone-wide banking supervisor and look at whether to relax Portugal’s deficit-reduction targets.
According to a draft text, Van Rompuy favours much tighter EU control of national budgets in the eurozone. He says that “stronger co-ordination, convergence and enforcement in the areas of economic policy” is necessary “to ensure sound budgetary policies at the national and European levels”.
He suggests a common budget for the eurozone and the introduction of “contracts” between all eurozone member states and the EU, similar to those currently signed by bail-out countries, enshrining in law “reforms they commit [themselves] to undertake”.
Eurozone finance ministers will also discuss disagreements around how the ESM will recapitalise banks. The issue has been put on the provisional agenda for the European Council of 18-19 October.
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