eurozone under pressure as spain struggles
Last Updated : GMT 12:11:15
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Eurozone under pressure as Spain struggles

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Arab Today, arab today Eurozone under pressure as Spain struggles

Brussels - AFP

Spain was in the firing line on the markets again Monday as eurozone finance ministers met to follow up on \"breakthrough\" measures agreed at a summit last month to tackle the debt crisis. The first issue of business as ministers gathered from 1500 GMT was how to help Spain\'s stricken banks after the June 28-29 EU summit promised them direct funding once a new single EU bank regulator is set up. That promise sparked a strong global market rally as direct funding from Europe would keep the money off the government\'s books and so not add to Spain\'s already heavy debt burden. But as doubts emerged over how and when the deal can be implemented, sentiment has turned negative, as the new bank regulator is not expected to be in place until next year. Spanish long-term borrowing costs on Monday jumped back above the 7.0 percent danger point, and Italy was under pressure too, sparking fresh speculation they could follow Greece, Ireland and Portugal into needing bailouts. Conversely, Europe\'s paymaster Germany saw its borrowing rates fall as investors opted for safety first and even France got some benefit as President Francois Hollande stressed the need to cut the country\'s debt. Mario Draghi, head of the European Central Bank, told the European parliament he would do everything needed to preserve the embattled single currency, vowing the \"euro is here to stay\" and downplaying current market turmoil. Noting recent market tensions, Draghi called for the eurozone to \"move towards a further sharing of sovereignty in the fiscal, financial and economic domains.\" \"All eyes will be on the meeting ... today to put a halt to the one-step-forward, two-step-backward discussions on the European sovereign debt crisis,\" ING analysts said in a client note. The summit accord on direct recapitalisation of the banks was important but since then, \"various barriers have been put up ... to undermine (market confidence) in (the) near term feasibility of such a solution,\" they said. A European Commission spokesman insisted there was no room for confusion. Bank recapitalisation via the new bailout fund, the European Stability Mechanism, would not require any guarantees from the state and was the \"cornerstone\" of the summit agreement on the banks, the spokesman said. At the June summit, leaders also agreed to make it easier for the ESM to help states in trouble but analysts were cautious that the 17 eurozone finance ministers would produce the progress needed to keep sceptical investors onboard. Capital Economics said hope was fading that the EU \"was finally getting to grips with its crisis ... With euro break-up risk likely to rise in the second half of the year ... things could get much worse before they get better.\" Reflecting the turn in sentiment, Spanish Prime Minister Mariano Rajoy announced on Saturday that he would take additional steps soon to cut the public deficit and called for quick progress on the summit agreements. \"Europe must fulfill the accords as swiftly as possible,\" he said. German Finance Minister Wolfgang Schaeuble, however, played down the prospects that Spain would get help for its banks anytime soon, insisting on the quid pro quo of tighter overall regulation first. Greece meanwhile has asked for more time on its latest debt bailout, saying it needs some slack on the tough terms to ease the pressure on an economy stuck deep in recession for a fifth year. Monday\'s meeting is also expected to discuss who should succeed Luxembourg\'s Jean-Claude Juncker, due to step down on July 17, as head of the eurozone finance ministers group. French Finance Minister Pierre Moscovici said Paris wanted Juncker to stay on until a \"possibly more lasting solution\" could be found to the debt crisis. He discounted a German weekly Der Spiegel report that Paris and Berlin have reached a compromise whereby Schaeuble would head the group next year, with Moscovici himself following in 2014. A European source said Monday that ministers would agree that Juncker should remain in his post for an unspecified period but on the understanding that he would not serve another full term of two-and-half-years. Luxembourg Finance Minister Luc Frieden said earlier that EU personnel issues were always difficult but given the other pressing business, added: \"We need to find a solution soon. It is not good to lose time.\" Also on the talks agenda will be a request for a rescue from Cyprus, who called for help even as it took on the prestigious six-month EU rotating presidency.

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