16th Jul 2019

Euro crisis response: Pieces of the puzzle being put in place

  • Merkel. Another eurozone summit is to be held on Wednesday, where markets and foreign governments expect a comprehensive solution to the worst crisis in the EU's history (Photo: Valentina Pop)

Key elements of a ‘comprehensive’ solution to the eurozone crisis are coming together amid an unprecedented series of meetings and summits in the European capital.

Eurozone finance ministers have signed off on the delivery of the latest tranche of bail-out cash to Greece and the gulf in positions between the bloc’s two largest economies, France and Germany, is beginning to close.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Following the Greek government’s passage of new austerity measures on Thursday defying a two-day general strike and violent protests, eurozone finance ministers meeting in Brussels gave the green light to the dispersal of €8 billion in rescue funds to Athens, a sum that should be paid out in the first two weeks in November so long as the International Monetary fund, responsible for a third of the sum, agrees.

Ministers also appear to be closing in on a figure for the scale of the recapitalisation of the bloc’s troubled banks, the subject of discussions amongst all 27 of the EU’s finance ministers on Saturday.

Europe’s banks will require a buttress of around €100 billion, according to officials, half the figure earlier mooted by the IMF but slightly up on the €80 billion estimated by the European Banking Authority.

Financial institutions must first attempt to raise capital from the markets before turning to bail-outs from national governments. Only when governments are unable to meet such a call would the eurozone’s rescue fund, the European Financial Stability Facility be tapped.

Worries remain however that in order to meet a target of increasing core tier one capital ratio to nine percent may simply tighten the bankers’ taps, already reluctant to lend in a weak economic climate.

No official announcement of the sums is expected before other crisis response issues are resolved however.

On the scale of a write-down on Greek debt, bond holders may be forced to swallow losses of between 50 and 60 percent. Without such haircuts, the country will require ever larger bail-outs from the eurozone to keep afloat.

A report on the ability of the debt-strangled country to pay back its creditors from the European Commission, the ECB and the IMF on Friday explored a series of three different options that could reduce the country’s debt pile to a more sustainable level. To bring Greece’s public debts down to 110 percent of GDP, investors would have to accept a cut of 60 percent on the value of their holdings.

However, the IMF and the ECB are at loggerheads over such an option. The report itself contained a footnote declaring the ECB to have opposed including the scenarios in the document.

The IMF is thought to favour bigger write-downs while the ECB fears the potential fall-out in the markets from the imposition of such heavy losses and is believed to be arguing instead for more severe austerity.

Meanwhile, deep divisions between Paris and Berlin over how to strengthen the region’s rescue fund, the EFSF, are closing as the number of options on the table are reduced.

France had wanted to turn the EFSF into a bank, allowing it to tap ECB funds, but Paris has begun to back down on the plan as the commission, the central bank and Berlin contended that there was no legal way such a move could be made without a treaty change.

French finance minister Francois Baroin late on Friday indicated that leveraging the EFSF via the ECB was no longer a key part of the talks.

Germany for its part favours a scaling up of the rescue fund via a type of insurance scheme in which the EFSF could guarantee perhaps 20 percent of fresh debt issues, a move that could extend the facility’s firepower by three to five times, to some €1 trillion.

Italy and Spain are thought to be opposed to such a plan, however, worried that those bonds issued with some form of EFSF guarantee would be favoured by investors over government debt products that did not require such backing.

Separately on Friday, rating agency Standard & Poor’s warned that if the eurozone tipped over into recession, it would cut the credit rating of France and four other states.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are meeting Saturday evening ahead of further talks with the EU presidents, Herman van Rompuy and Jose Manuel Barroso. EU economic and monetary affairs commissioner Olli Rehn and IMF chief Christine Lagarde will also attend the meeting expected late Saturday night.

A full EU summit of the bloc’s premiers and presidents and a eurozone summit of the single currency area’s leaders on Sunday is not expected to produce any final conclusions however, as German MPs are required to give their assent before Berlin can sign off on any new pact.

As a result of the delay, yet another eurozone summit is to be held on Wednesday, where markets and foreign governments expect a comprehensive solution to the worst crisis in the European Union’s history to be delivered lest the eurozone crisis tip the world economy over into a second recession.

EU summit delayed as France, Germany tussle

European Council President Herman van Rompuy has delayed by a week a planned summit of the bloc’s leaders in order to give more time for behind-the-scenes negotiations on plans to end the eurozone crisis.

IMF warns France on budget deficit targets

The International Monetary Fund has warned France that it will have to carry out more spending cuts to ensure it reaches its deficit reduction commitments amid lower-than-expected growth expectations. Meanwhile Cyprus' credit rating was downgraded Wednesday raising the possibility that it could be the fourth eurozone country to need a bailout.

Commission to unveil bank bail-out plan

European Commission President Jose Manuel Barroso has said that the EU executive will put forward plans for a fresh round of bank bail-outs across Europe on Wednesday.

Merkel, Sarkozy will do ‘whatever necessary’ to bail-out banks

Financial markets hoping for the outline of some grand strategy for dealing with the ever-worsening eurozone crisis are likely to be disappointed by the vague announcement offered up by the French president and German chancellor after emergency talks in Berlin on Sunday.

Sarkozy tells Cameron to 'shut up' on eurozone

Sharp tensions between Paris and London flared up on Sunday amid crisis talks on the eurozone, as President Nicolas Sarkozy of France hit out at British criticisms of the single currency.

EU hesitates to back France over US tariff threat

France has passed a new tax on tech companies that will affect US global giants like Facebook. Donald Trump has threatened retaliatory tariffs over it. The EU commission says it will "coordinate closely with French" on the next steps.

News in Brief

  1. Ansip's ex-cabinet chief to head EU cybersecurity agency
  2. Malta starts trial of journalist murder suspects
  3. Full text of von der Leyen candidacy speech to MEPs
  4. Von der Leyen open to further Brexit delay
  5. Von der Leyen promises carbon border tax
  6. Brexit: both UK PM candidates say Irish backstop is 'dead'
  7. Mogherini: Iran's nuclear enrichment 'reversible'
  8. Report: Selmayr to leave 'next week'


Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. Son: Malta trial for murdered journalist 'not enough'
  2. Von der Leyen's final appeal to secure top EU post
  3. EU talks tough on Turkey, but arms sales go on
  4. The Abortion Exodus - more Poles and Croats going abroad
  5. Poland's ex-PM loses EU parliament chair again
  6. Von der Leyen reaches out to left and liberal MEPs
  7. Farmers among new MEPs deciding on EU farming money
  8. Von der Leyen's EU vote far from sure

Stakeholders' Highlights

  1. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  2. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  3. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  4. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  5. Nordic Council of MinistersNordic commitment to driving global gender equality
  6. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  7. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  8. Nordic Council of MinistersNordic talks on parental leave at the UN
  9. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  10. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  11. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  12. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership

Join EUobserver

Support quality EU news

Join us