Eurozone, IMF Offer Greece 10 Days To Fulfill Promises

Eurozone, IMF Offer Greece 10 Days To Fulfill Promises

Greece's creditors on Monday allotted ten days to the country to fulfill the reform pledges before deciding on the next loan tranche of 31.5 billion euros. At the same time, the euro area ministers hailed the fiscal consolidation efforts of the coalition government led by Antonis Samaras, raising hopes of a positive decision at the upcoming EU summit.

Also, at the Eurogroup meeting held in Luxembourg on Monday, euro area finance ministers officially launched the European Stability Mechanism (ESM), the single-currency bloc's 500-billion euros permanent bailout fund.

The meeting, however, failed to take any clear decision on how to bring the Greek bailout program back on track.

Applauding Greek efforts to adhere to the fiscal measures demanded by the creditors, Eurogroup Chief Jean-Claude Juncker said Greece should commit to a list of 89 policy steps before the EU leaders' summit on October 18-19. "We were pleased to hear substantial progress has been made on Greece," especially in the last days, he said at a press conference after the meeting of euro area finance chiefs.

International Monetary Fund Managing Director Christine Lagarde also hailed Greece's work, but said more needs to be done. She said the troika would continue discussions with Greece.

Juncker, meanwhile, urged the troika and Greece to finalize their negotiations and agree on steps to close the fiscal gap in 2013-2014 budget as soon as possible.

Speaking to reporters after the meeting, Greek Finance Minister Yiannis Stournaras said he hopes the creditors will give Greece an additional two years to meet its budget targets at an estimated cost of 12 billion euros.

German Chancellor Angela Merkel is due to visit Athens on Tuesday amid strike called by Greek trade unions in protest against Germany's tough stance with regard to the bailout reforms.

The ministers also discussed the situation in Spain, Cyprus and Portugal. The meeting stressed on the need to accelerate work on Cyprus. Moody's Investors Service on Monday lowered the Cyprus's government bond ratings to B3 from Ba3, citing "profound difficulties in the Cypriot banking sector." The ratings have a 'negative' outlook.

Eurozone finance chiefs also endorsed the latest austerity measures announced by the Spanish government and indicated that the aid for Spanish banks from ESM will likely start in November.

On Portugal, the ministers said the program is on track and allotted more time to meet its budget goals. Portugal's deficit target was revised up to 5 percent of GDP from 4.5 percent for 2012, and to 4.5 percent of GDP from 3 percent for 2013. The meeting also approved the disbursement of loan installment worth 4.3 billion euros.

Launching the ESM at the Board of Governors meeting on Monday, Juncker said the fund "itself will certainly be regarded as a reassuring presence within and outside the Monetary Union."

The ESM will now operate alongside the European Financial Stability Facility (EFSF) for nine months. In the transitional period, all new programs will, as a rule, be financed by the ESM.

This mechanism will be globally the largest international financial institution with a strong capital base of 700 billion euros of which 80 billion euros will be paid-in by early 2014, including about 33 billion euros by October 12.

Moody's on Monday assigned a long-term issuer rating of Aaa and a short-term issuer rating of Prime-1 to the ESM. However, the rating carries a 'negative' outlook due to the 'negative' outlooks on the ESM's key member states and guarantors, including Germany, France and the Netherlands.