Eurogroup Gives Spain Extra Time On Deficit; To Discuss Aid Deal With Cyprus

Eurogroup Gives Spain Extra Time On Deficit; To Discuss Aid Deal With Cyprus


Eurozone finance ministers on Monday endorsed the European Commission's recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014. The Eurogroup said it will also negotiate a bailout program with Cyprus in the coming months.
In a statement, the ministers said "the Eurogroup has reached a political understanding on the draft MoU underlying the financial assistance for the recapitalisation of financial institutions for Spain." Also, the ministers agreed to offer Spain EUR 30 billion to help the country's troubled lenders.
The ministers also backed the decision made at the June 29 summit that the aid will be provided via the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) becomes available and then transferred to the ESM without gaining seniority status.
"The Eurogroup envisages providing the final approval of the program by 20 July, after national procedures have been completed," the statement said.
Meanwhile, the ministers said they look forward to discuss a fully-fledged program with the Cypriot authorities in the coming months.
At Monday's meeting, the European Central Bank and EFSF signed a technical agency agreement, creating the possibility of an efficient conduct of market operations by the EFSF. As soon as the ESM has been established, a similar agreement will be concluded between the ECB and ESM.
In addition, the Eurogroup has politically endorsed the ESM investment policy guideline. The group welcomed the Commission's intention to present proposals for a single supervisory mechanism involving the ECB in early September. "We expect the Council to consider these proposals as a matter of urgency by the end of 2012," the statement read.
Technical discussions on the future ESM direct bank recapitalisation instrument will also start in September so that the ESM could recapitalise banks directly once an effective single supervisory mechanism is established.
Meanwhile, in a hearing at the Committee on Economic and Monetary Affairs of the European Parliament at Brussels on Monday, ECB President Mario Draghi said since financial assistance can only be temporary, the quality of the reforms and their implementation are absolutely essential. "It is this quality that ultimately determines the success of a program."
The euro area's fiscal deficit is declining towards 3 percent of GDP. The external accounts have remained close to balance and the price stability has been maintained. "All these are reasons to pursue reforms with a strong degree of confidence," he added.
Draghi noted that though indicators for the second quarter of 2012 point to a weakening of growth and heightened uncertainty, the central bank continues to expect the euro area economy to recover gradually, albeit with dampened momentum.
At the Eurogroup meeting on Monday, the ministers named Luxembourg central bank chief Yves Mersch to the ECB Executive Board.



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