BLOWIG HOT AIR ... Greece is far form being OK...Greeks are though...

GERMANY BLOWING HOT AIR - "Greece is getting on track," German Finance Minister Wolfgang Schäuble said in Brussels as the meeting ended. "It is not easy for them."  The agreement reached on Monday night foresees an initial payment of €2.5 billion this month to be followed up by more payments in subsequent months. Greece's creditors are primarily concerned by the slow progress Athens has made on downsizing its public sector, with thousands of additional layoffs pending. The country's privatization program has also generated much less cash than expected, most recently as a result of the government's inability to find a buyer for the natural gas company DEPA. Tax reform and the pursuit of tax dodgers is another area where Greece's creditors have demanded improvement. "It's time to step up the momentum of reform in Greece," said European Commissioner for Economic and Monetary Affairs Olli Rehn.  Still, the public sector cuts are controversial in Greece, with thousands of teachers and municipal workers taking to the streets of Athens on Monday and Tuesday. Some 12,500 state employees are to be placed on administrative leave by the end of September with an additional 12,500 to join them by the end of the year. They will receive 75 percent of their salary for eight months. If they haven't found a new job by then, they will be unemployed.

There is concern that the additional cuts could further damage the country's fragile economy which, while slowly improving, is still stuck in its sixth straight year of recession. Economists forecast that the country could return to growth next year -- a tiny increase of just 0.6 percent -- but some worry that dividing up aid payments could derail the slow recovery. The agreement to continue funding Greece, however, was by no means unexpected. Despite widespread concern with Athens' slow pace of reform, there is little appetite for risking a return of the euro crisis by withholding funding. The situation in Portugal has made European finance ministers even more cautious. Political instability in Lisbon last week recently triggered a spike in the interest rate on Portuguese sovereign bonds. The country was able to avoid a collapse of the government, but Lisbon must nevertheless push through an additional €5 billion austerity package in the coming months, and there are concerns that political worries might return.

Greece too has seen its share of political instability in recent weeks, with the government of Prime Minister Antonis Samaras almost collapsing due to its sudden and controversial shutdown of public broadcaster ERT. One of the parties in his three-party coalition left, leaving him with a tiny three-seat majority in parliament.

It is unclear whether France's proposal to provide direct aid to Greek banks will gain much traction. Some €60 billion of the €500 billion ESM fund has been made available to provide direct assistance to euro-zone banks that need it. But it remains controversial. Furthermore, European leaders only recently agreed to involve shareholders, creditors and individual countries should large banks find themselves in need of help. It remains unclear whether that agreement applies to existing cases like Greece.

FRANKFURT — Chancellor Angela Merkel of Germany on Sunday re-emphasized her opposition to issuing bonds backed by all the euro zone countries, a position that will be greeted enthusiastically by many of her fellow citizens but could unsettle investors at the beginning of what could be another difficult week in global financial markets. Mrs. Merkel told ZDF television in an interview broadcast Sunday that the so-called euro bonds would be an option only in the distant future. “It will not be possible to solve the current crisis with euro bonds,” she said. She added that “politicians can’t and won’t simply run after the markets.” “The markets want to force us to do certain things,” she added. “That we won’t do. Politicians have to make sure that we’re unassailable, that we can make policy for the people.” The German finance minister, Wolfgang Schäuble, echoed Mrs. Merkel’s comments, saying that common debt would make it easier for governments to avoid pursuing responsible fiscal policies. In any case, he told the newspaper Welt am Sonntag, it would take too long for countries in the euro zone to amend the treaty on monetary union, which would probably be required to allow the issuance of such bonds. “We have to solve the crisis within the existing treaty,” Mr. Schäuble said. The statements by the German leaders are in tune with public opinion in Germany as well as in other countries, like the Netherlands. The Dutch finance minister, Jan Kees de Jager, told the magazine Der Spiegel in an interview published Sunday that Mrs. Merkel should remain firm in her opposition to euro bonds.

The ninth arrangement that Romania is preparing to sign with the IMF next month kicks off with a rather vague agenda, less ambitious than the preceding letters of intent which, in fact, were left with some unmet targets every time. According to the letter of intent obtained by Mediafax, the problem of the arrears accumulated by the big state companies - the chapter of the current arrangement where Romania has fallen behind the most, is discussed in a paragraph in which the Government announces the shift of financial control from the respective ministries to the Finance Ministry. In addition, the régies and the companies subordinated to the local authorities will report financial indicators on a quarterly basis to the Finance Ministry, but there are no means of penalising slippages, if they continued to occur. Much more ambitious are the plans announced recently by Jeffrey Franks, chief of the IMF mission for Romania, who talked about evaluating and setting a strategy for a list of 150 state companies. But the provisions of the letter of intent published by Mediafax do not include any mention of this list. (Z.F)