Euro Zone Seeks Written Pledge From Greek Politicians
fxbom.com
09:34 AM
BRUSSELS-(Dow Jones)- Euro-zone governments are expecting both parties of the new Greek government to sign a letter accepting the conclusions of last month’s euro-zone summit, ministers said Monday.
The move is intended to lock the Greek political system into what will likely be another round of painful austerity measures. Euro-zone leaders say broad domestic political support for the bailouts in Portugal and Ireland has helped those programs succeed. They hope a similar consensus will put the Greek program back on track after a year-and-a-half of missed budget targets.
“It should have been done months ago,” said Jean-Claude Juncker, president of the 17-nation group of euro-zone governments, after a meeting of ministers here.
But the fate of the new Greek government was still undecided Monday night: disputes over when new elections should be held have delayed the candidacy of Lucas Papademos, the former vice president of the European Central Bank who is now the leading candidate to replace George Papandreou as prime minister.
Ministers pressed the government of Italy, possibly the next domino in the euro-zone crisis to fall, to implement promised reforms, but they stopped short of calling for a unity government as they required in Greece.
“We are not asking for national unity in Italy, because Italy is not under a program,” Juncker said.
The European Financial Stability Facility, the euro zone’s rescue fund, also published details about two options under discussion for drawing in outside funds to leverage the EFSF’s lending capacity. The leverage plan, which officials hope will give the bloc EUR1 trillion in bailout capacity, is the bloc’s chief strategy to drive down spiking yields on Italian debt.
One option would be to use the EFSF to guarantee a portion of the new bonds issued by euro-zone governments. The second option would create “co-investment funds” that would use EFSF money to absorb first losses on sovereign debt purchased by the funds.
But even the EFSF, which issues bonds to fund its lending, is facing higher borrowing costs after a week in which euro-zone leaders opened the door to a possible euro-zone exit for Greece if its government doesn’t agree to the conclusions of last month’s summit. Yields on bonds the EFSF issued Monday to support the Irish bailout were the highest of any bond issue since the fund started borrowing at the beginning of the year.
“In light of the very difficult market environment, which was made particularly difficult by the events of last week, it’s understandable that yields have gone up,” said Klaus Regling, head of the EFSF.
The release of new details about how the EFSF will be leveraged should help calm markets, Regling added.
The payment of the sixth installment of loans slated for Greece, now nearly two months overdue, will be decided later this month, probably by conference call, Juncker said. But Juncker said that he may drag euro-zone ministers back to Brussels for another meeting around the third week of December.
-By Matthew Dalton and Riva Froymovich, Dow Jones Newswires; +32 (0)2 741 1487 ; matthew.dalton@dowjones.com
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