The euro zone now accepts Greece will need more time to meet economic targets under its delayed bailout, but ministers maintained on Friday that there will be no “third aid program” for the debt-wracked country.
Amid international tensions over the perennial struggle in Athens to meet conditions for hundreds of billions of euros of loans, IMF managing director Christine Lagarde joined talks in Cyprus to update on the latest findings from “troika” inspectors on the ground.
No formal decisions or agreements were due, and there was even less expectation of any breakthrough in the stalemate over Spanish banking and sovereign debt or Irish hopes of winning help for its banks on the back of Madrid’s deal.
But the change of tone on Greece in Nicosia was significant, as the “troika” of international lenders – the EU, IMF and the European Central Bank – ploughs on towards a summit of EU leaders on Oct. 18-19 that is clearly shaping up as the next Greek crunch moment.
A group of key Eurogroup finance ministers have now converged around a growing consensus to give Athens “more time” to deliver on its end of the second, €130-billion bailout originally agreed in March, but “not extra money.”
“If the deficit turns out to be somewhat worse than expected because of a temporary downturn in the economy, there could be some more time – but not money, not extra money,” said Dutch Finance Minister Jan Kees De Jager.
“There could be no time for delaying measures because it’s in the interests of Greece and the people of Greece that reform measures will continue,” he underlined.
Austria’s Maria Fekter adopted the same line, saying “we will give them the time they need for that but probably not more money,” the day after France’s Pierre Moscovici offered the possibility of some flexibility following a meeting with Greek Prime Minister Antonis Samaras in Athens.
In Washington on the eve of the talks, International Monetary Fund spokesman Gerry Rice had also said: “There are good arguments to extend the period for Greece to implement its fiscal adjustment.
“We said such an extension would be dependent on the ability of financing,“ Mr. Rice said.
A diplomat attending the talks told AFP that the message ministers were sending out was there there would be no third package of loans to Greece.
“Obviously more time means some more cost along the way, but when ministers say no more money, they mean no third aid program,” he said.
“The Greeks are telling us here they are adequately financed until mid-October.”
Tensions on the financial markets have eased this week following the European Central Bank’s controversial plan to buy bonds of struggling states and the Germany’s highest court’s move to clear a new European firewall aimed at fighting the debt crisis.
The ministers were to be joined after lunch by non-euro counterparts, for a first detailed discussion of European Commission legislative proposals for EU-wide bank supervision led by the European Central Bank.
German Finance Minister Wolfgang Schaeuble sent a few flutters running first thing when he said he could not envisage direct recapitalization of banks through the European Stability Mechanism “as early as January.”
At the last EU summit in June, leaders agreed to give the revamped €500-billion ($645-billion U.S.) ESM rescue fund the potential to recapitalize banks directly, currently not an option.
However, this depends on agreeing the revamped supervisory regime by the turn of the year.
Without direct recapitalization through the ESM, Spain, whose public debt already reached a record 75.9 per cent of output at end-June, would have to put advance borrowings onto sovereign debt accounts, pushing it closer to needing a full sovereign bailout.
A diplomat said there would be nothing concrete on Spain at these talks, underlining: “There’s a long way to go on that, we have until the end of the year.”
Spanish Finance Minister Luis de Guindos stuck to Madrid’s line that economic projections were “on the right track” and therefore that Spain did not expect Eurogroup partners to lay down any new conditions beyond those already agreed were it to need sovereign as well as banking-sector aid.
Spain has secured a deal for a banking sector rescue loan of up to €100-billion, but Prime Minister Mariano Rajoy, now facing stirrings of revolt in independence-minded Catalonia, fears a political backlash if a sovereign bailout comes with new strings attached.