EU put to the test by markets, Italy to pass

The markets are reacting to Spain's ever more dramatic economic situation, a continuing risk that Athens may leave the eurozone, the 'progress reports' that the EU Commission will be sending out to Italy and other EU partners, the May 31 referendum in Ireland on the ratification of the Fiscal Compact, and the debate over the eurobonds: yet another highly-charged week lies ahead for the eurozone and the EU due to many elements of uncertainty which continue to weigh heavily on their future. On Wednesday the European Commission will be making its ''recommendations'' to Italy in a sort of progress report in which it will asses what has been done and what remains to be done in order to get the country's finances back in order as well as relaunch competitiveness and growth. According to the indications so far, Italy is expected to pass the test. However, Brussels will be recommending that Italy continue firmly in the direction taken, implementing all the decisions made and bringing in new actions to reduce unemployment, especially that affecting the young and women, as well as restore competiveness - which has been pared exceedingly slim. In Brussels' view, trends seen in the period permitting, no further cuts will be necessary so long as the planned increase in VAT of two percentage points is implemented in October. Meanwhile, over the next few days European institutions - the EU Parliament, Council and Commission - will continue working closely with national chancelleries to select the measures to be taken to relaunch growth and ensure the stability of the eurozone (with eurobonds and the like). The Budget Commission of the European Parliament, in particular, will be voting on the agreement reached with the European Council to bring in a pilot programme in the field of project bonds. All of these of issues which - after Brussels - others will be having their say on, including Italian Prime Minister Mario Monti and ECB governor Mario Draghi. On Thursday Monti will be spending the entire day in the EU capital, first speaking at the Brussels Economic Forum and then at the State of the Union conference. Draghi will be taking part in a public debate on Wednesday afternoon and on Thursday morning he will appear at the Economic Commission meeting within the European Parliament. The spotlight, however, remains especially on Greece and Spain. Athens - while awaiting the June 17 elections, which will determine whether or not it remains in the eurozone - continues to be a strong of great concern. Yesterday fresh speculation came from Greece which gave weight to the bleakest predictions: that at the end of June, lacking further international aid, the country will go into default. Social and political tension is so high that statements by IMF director Christine Lagarde (''Greeks need to start helping each other by paying all taxes'') have led to generalised outcry spreading beyond the nation's borders. Adding to the criticism of Lagarde by Greek politicians and the shower of protest which flooded her Facebook page was that of the French government. According to the latter, this is no time to ''give lessons'' to the Greeks by presenting a vision which is ''a bit caricatural and stereotyped''. However, in this phase Spain is also filling the eurozone to with dread. The Spanish banking system is extremely fragile and the Bankia case (for the bailout of which Madrid will have to spend a record high 23.5 billion euros) may not be the last to weigh on the coffers of a state which due to devastated public finances is seeing the spread between its ten-year bonds and the German Bund rise relentlessly. How long will Madrid be able to hold out without requesting EU aid? And, last but not least, there is the referendum due to be held in Ireland on May 31 on the ratification of the Budget Pact. Outlooks say that the 'yes' vote will win, and in any case the pact is structured in such a way that it can come into effect even with only a majority of countries having voted for it. However, a 'no' vote would lead to Ireland losing EU aid, and would certainly not help the eurozone regain stability.(ANSAmed).