Eurozone finance ministers agreed Monday to unlock billions of euros in fresh aid for Greece on condition it press ahead with urgently needed reforms. The Eurogroup ministers, holding their last meeting before the summer break which was also attended by IMF chief Christine Lagarde, agreed to pay out 6.8 billion euros in fresh aid to Athens. However, the funds would not be handed over in one lump sum, but in different instalments subject to certain conditions being met. "The Eurogroup commends the authorities for their continued commitment to implement the required reforms that have already led to a significant improvement of cost competitiveness, an impressive strengthening of the fiscal position and a more resilient banking sector," the group said in a statement read out by its chief, Dutch Finance Minister Jeroen Dijsselbloem, at a news conference. "The Eurogroup therefore expresses its appreciation for the efforts made by the Greek citizens. "At the same time, significant further work is needed over the next weeks to fully implement all prior actions required for the next disbursement," Dijsselbloem added. In particular, the required reforms of the public administration -- Athens has pledged to axe 4,000 state jobs by the end of the year, as well as redeploy 25,000 civil servants across its vast bureaucracy -- needed to be carried out. And further efforts were needed to improve tax revenue collection. "It is time to step up momentum of reform in Greece," said EU economic and monetary affairs commissioner Olli Rehn.... the worst incompetent idiot . Under the terms of the deal, some 4.0 billion euros would be paid out "in the coming weeks," and a further 1.0 billion euros in October, both sums shared by the eurozone rescue fund EFSF and European central banks... The Economist Intelligence Unit's Martin Koehring notes that today's proposals on a common bank resolution mechanism are still quite some way off being implemented and could face further watering down in the meantime.
As with other elements of the evolving European banking union (such as the single supervisory authority and the European-wide bank deposit scheme), the proposals for a single resolution authority are testing governments' willingness to pool sovereignty. Germany and other creditor countries fear that their taxpayers may ultimately foot the bill when a major bank goes bust in the euro area. Unsurprisingly, debtor countries such as Spain are in favor of pooling sovereignty in banking matters. Each of the core elements of the suggested banking union has so far been watered down and/or delayed as the fundamental question about the extent of solidarity within the EU remains unresolved; the single resolution authority is unlikely to be an exception. The time frames involved in constructing the various elements of the banking union, such as the resolution authority and the recently-agreed "bail-in" regime, suggest that a banking union capable of making important decisions to boost financial stability is unlikely to be in place before 2018. Hence, the latest steps towards banking union are unlikely to have a major impact on solving the current crisis. They may, however, increase confidence in the medium-term viability of the euro zone, which has been severely shaken.
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Dijsselbloem on banking resolution
And finally...our Europe editor, Ian Traynor, has interviewed eurogroup president Jeroen Dijsselbloem about the state of the eurozone.
Among other points, the Dutch finance minister warns that the EC might not be granted its wish of getting the powers to wind up failed European banks (see 4.30pm)
Dijsselbloem said:
It's not completely decided what that authority should look like.
The main thing is it should be effective. You need to be able to decide overnight, over a weekend.
He also warned that the €60bn fund that will officially be set aside to refinance banks is really a last resort. Tapping it will certainly not be the first response:
The €60bn cap is mainly to give a signal that the direct recapitalisation is a means of last resort," said the Dutch minister. "Once again for too long we have been thinking public backstops are standing right in front … We want to change that. The €60bn is basically a political message saying it's going right to the end. Private means private investors. So resolution funds have to be used first. The €60bn is a political statement saying let's not start with the ESM."
S&P’s downgrade came late in a day that also saw Italy’s supreme court decide that it would rule on July 30th on Silvio Berlusconi’s appeal against his conviction for tax fraud – much earlier than expected. Though his Bunga Bunga trial is the one that has – unsurprisingly – captured the media coverage, the tax dodging case is the one with the potential political punch.
It was always known it would reach its climax first, and no one can predict how Berlusconi would react to a definitive conviction. One possibility open to him is to bring down Enrico Letta’s three-party, left-right coalition in the same way he scuppered Mario Monti’s non-party, technocratic government last year.
Netherlands and Italian data
The Netherlands has followed France (see 8.08am) by reporting a drop in manufacturing output in May -- it fell 0.6%, after a 0.6% rise in April.
And Italy has reported a 0.1% rise in industrial production - the first increase in four months. Analysts had expected a stronger rise, though, of 0.3%.
Put together, it suggests May wasn't a great month for many of eurozone's larger economies.
Two points:-
Firstly a significant amount of their exports are within the EU.
Secondly if the Euro fails then the Germans would revert to the DM. The DM would run at a much higher exchange rate than the Euro hence making their exports more expensive, ergo numbers drop. This is a point all Germany manufacturing is worried about.
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