EU ministers thrash out eurozone loan

EU ministers thrash out eurozone loan
By Tony Barber in Brussels
Copyright The Financial Times Limited 2010
Published: May 18 2010 02:04 | Last updated: May 18 2010 08:28
http://www.ft.com/cms/s/0/832d97a6-6214-11df-998c-00144feab49a.html


European finance ministers on Tuesday praised Greece, Portugal and Spain for adopting rigorous measures to restore order to their public finances and overcome Europe’s sovereign debt crisis.

After chairing a meeting of the eurozone’s 16 finance ministers, Jean-Claude Juncker, Luxembourg’s prime minister, also said European governments would step up efforts to establish a global tax on financial market transactions.

The meeting, which lasted for more than seven hours and stretched into early Tuesday morning, was devoted partly to the question of how to implement a €440bn loan guarantee scheme that was announced on May 10 for any eurozone states that, like Greece in recent weeks, may face severe debt refinancing difficulties.

But few extra details of the scheme were made public after the ministers’ talks. Mr Juncker said eurozone member-states would be the shareholders in a “special purpose vehicle” that is to be set up under the scheme, and the mechanism itself would be established under Luxembourg law.

The ministers made clear that no country would receive financial assistance under the loan guarantee scheme unless all the other eurozone states agreed unanimously that the aid was necessary. The special purpose vehicle, backed by government guarantees, would raise the funds from the financial markets, they said.

Other participants said several legal and technical details relating to the mechanism remained to be sorted out. “As regards the European financial stability mechanism, we discussed the principles and parameters, so that technical work can be concluded shortly,” Olli Rehn, the European Union’s monetary affairs commissioner, told reporters.

The main public message coming from the talks was that ministers warmly welcomed the austerity programmes that Greece, Portugal and Spain have adopted in response to the ever more intense pressures they have come under this year in bond markets.

Mr Juncker said Greece, which is being helped out with a €110bn rescue package arranged by its 15 eurozone partners and the International Monetary Fund, was “on the right track”. It is the first such rescue plan in the eurozone’s 11-year life.

He described the latest Portuguese and Spanish measures as “courageous”. Portugal last week announced increases in capital gains tax and income tax in an effort to slash its budget deficit to 4.6 per cent of gross domestic product next year from 9.4 per cent in 2009.

Spain said it would cut the salaries of public sector workers, freeze pension benefits and slim down its state investment programme, with the aim of slashing its deficit to 6.5 per cent next year from 11.2 per cent in 2009.

The eurozone ministers, some of whom have spoken harshly about the role of financial markets in the debt crisis, made clear they would press ahead with their campaign to persuade the US and other countries to impose a tax on global financial transactions.

“We shall advocate more global taxation on financial transactions,” Mr Juncker said.