European finance officials, meeting to clear the way for Greece’s next tranche of aid, are unlikely to reach a deal today as they debate over collateral to underpin Greece’s rescue loans and Germany objects to altering European treaties.
Even before officials began discussing Greece’s next 109 billion-euro aid package in a monthly meeting being held in Wroclaw, Poland, Finnish Finance Minister Jutta Urpilainen said, “We’re going to negotiate about it, but unfortunately I don’t see that we can find a solution” today.
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The news has the euro downsliding, halting a two-day gain versus both the U.S. dollar and the Japanese yen. Meanwhile, the dollar index rose for the first time this week after Nobel-prize winning economist Joseph Stiglitz warned of a recession in Europe and the U.S., spurring demand for safer assets.
Despite 256 billion euros in aid for Greece, Ireland, and Portugal, European markets have yet to stabilize, and instead the debt crisis has contaminated Italy and Spain as well, leading many to wonder whether the shared 17-nation currency, meant to be permanent, might break up.
Finland’s ministers have been insisting on collateral, possibly in the form of shares in nationalized Greek banks or real estate, in order for Greece to receive its next aid payment, just one example of the many issues holding up a decision from the 27 European Union finance ministers and central bankers meeting in Poland today.
German Finance Minister Wolfgang Schaeuble has objected to the issuance of common euro bonds or the creation of a European finance ministry, saying that crisis management has to be guideded by Europe’s current rulebook. “We have to solve the problems on the basis of existing treaties,” Schaeuble said on his way in to the meeting. “Treaty changes take time and until then we’ll solve problems as we have agreed to do.”
Meanwhile, markets are operating without “a clear roadmap for the future of the euro zone,” said Julian Callow, chief European economist at Barclays Capital in London. “They need to see Berlin and Paris lead the way and say by 2015, we aim at a fiscal union for the euro area.”
ECB President Jean-Claude Trichet has said that the ministers need to show the same “unity of purpose” as central banks did on Thursday in providing extra dollars to European lenders in order to boost liquidity. Yesterday, the ECB joined other major central banks in offering a series of three-month dollar loans to European banks faced with the highest costs for obtaining the U.S. currency in almost three years. The ECB’s move, combined with German Chancellor Angela Merkel and French President Nicolas Sarkozy’s pledge to keep Greece in the euro and prevent a default, gave global markets a lift and boosted the euro against the dollar on Thursday.
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Greek Prime Minister George Papandreou has promised a “decisive battle” for budget cuts in order to persuade European government and the International Monetary Fund to release the next 8 billion-euro loan installment later this month. While Austrian Finance Minister Maria Fekter has said that she is “very confident” that Greece will receive its installment as planned, the IMF has refused to commit. “Implement and you get the next payment,” said IMF Managing Director Christine Lagarde on CNBC yesterday. “Time is running short and the Greek authorities have to deliver.”