Noonan wants speedy revision of Irish bank rescue
Minister for Finance Michael Noonan pressed for a speedy EU deal to revise Ireland’s bank rescue as he linked the question to an IMF review of the bailout later this year.
Mr Noonan said he hoped to receive clarity at a euro zone meeting tonight over the timetable for the renegotiation of Ireland’s bank debt, but little further progress was expected.
“I think a timeframe is the main progress we would make,” he told reporters as he arrived in Brussels for talks with his counterparts.
The Minister wants a deal on the banking debt later this year, and made a direct reference to the IMF when asked if he was angling for an agreement before the December budget.
“That would suit our domestic agenda and it would also suit the IMF timeframe of having to adjudicate on whether we’re funded for 12 months ahead or not and they’ll need to do that some time in the autumn,” he said.
Earlier, diplomats said Europe would grant Spain an extra year to reach its deficit targets after it outlines further budget savings to finance ministers meeting in Brussels.
Although no final decision is expected at the meeting, a wider gathering of EU finance chiefs tomorrow is set to ease a debt goal that has pressured Madrid to make punishing cuts that are exacerbating a recession.
Decisions on banking supervision, how to use euro zone bailout money, aid to Spain and Cyprus and whether to grant concessions to Greece are likely to take months to finalise, while pressure for action is growing.
"Spain's budget consolidation targets will be adjusted to give it an extra year," said one of the diplomats. "This is not a unilateral move. Spain needs to make the necessary cuts to reach that goal and this will be discussed on Tuesday at the Ecofin (meeting of ministers). I expect the extra year to be granted."
Luis de Guindos will spell out at to a finance ministers' meeting tomorrow his government's plan for a package of up to €30 billion over several years through spending cuts and tax hikes that are due to be announced this Wednesday.
A source close to the Spanish government said €10 billion of cuts would come this year and that the measures would include a VAT hike, reduced social security payments, reduced unemployment benefits and changes to pensions calculations.
In return, Madrid will be given until 2014 to reach strict goals laid down in EU budget rules.
Madrid had been due to reduce its national budget deficit to 3 per cent of gross domestic product by the end of 2013. But a deep recession following a housing collapse, is putting that beyond reach.
While granting this concession lifts some pressure on Spain, it had been expected. A decision on the full details of a crucial rescue for the country's banks is also due this month.
A Spanish government source said it would sign a memorandum of understanding today in Brussels regarding the rescue, which would be followed on July 20th by a full loan agreement. As part of that, it will agree to create a single bad bank to house toxic assets from its banking sector.
Spain has requested a bailout of up to €100 billion for its banks. Foreign minister Jose Manuel Garcia-Margallo called on the European Central Bank to act to relieve market pressure by buying its bonds, as its borrowing costs rise.
"At this moment the only institution that has enough money to act is the ECB," he said at a conference today. "For that reason, the ECB should intervene in markets, it should start massive purchases of public debt so that speculators understand that they will lose their bets against the euro."
Alongside Spain, euro zone ministers will also be confronted with the need to decide on a new structure for cross-border banking supervision, how to use euro zone bailout money, aid to Cyprus and whether to grant concessions to Greece, which has admitted it is missing its bailout programme targets.
A key part of a plan agreed by euro zone leaders at a summit last month is to give the ECB a central role in supervising banks, which would then allow the permanent rescue fund – the European Stability Mechanism (ESM)- to recapitalise banks directly instead of via governments.
ECB President Mario Draghi will testify to the European Parliament before ministers meet.
Leaders want to break the link between banks and sovereigns by not lumbering governments with debts for rescuing their lenders, making it harder for them to borrow.
They agreed to remove the ESM's preferred creditor status when it lends to Spain, to calm investors who were worried they would not be repaid money they had already lent.
They also decided that the ESM and the euro zone's temporary bailout fund, the EFSF, can buy euro zone bonds at auction and in the open market to lower borrowing costs, with some conditions attached but without a full programme.
The ESM is due to start operating during the European summer, but at least for now, countries will need to provide guarantees in return for bank aid it gives, according to one euro zone official who is involved in preparing the Eurogroup.
A spokesman for the European Commission said this would change once a new supervisor for banks is in place, which is expected next year.
Much depends on the ECB's crucial role as supervisor, which will need to be grounded in European law. It falls to the European Commission to propose such legislation, which is not expected until at least September.
Despite the obstacles to the broad package outlined by leaders, the range of measures agreed allow some short-term action, although there is vocal opposition from the Netherlands and Finland.
Helsinki insists that there was no agreement on bond-buying by the ESM in secondary markets at the leaders' summit.
Ministers will discuss the findings of the "troika" of the European Union, the European Central Bank and International Monetary Fund from their first mission to Greece since the June 17th election. Another mission is due to return later in July.