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Eurogroup Extends Spain's Fiscal Deadline To 2014

by Ulrika Lomas,, Brussels

12 July 2012

In its statement on the follow-up to the June 29 Euro Summit, the Eurogroup announces that it has now reached a political understanding on the draft Memorandum of Understanding (MoU) underlying the planned financial assistance to Spain, and backs plans to extend Madrid's deadline for correction of the excessive deficit to 2014.

The Eurogroup says: “We reaffirm our strong commitment to do whatever is necessary to ensure the financial stability of the euro area, in particular through the flexible and efficient use of existing EFSF/ESM instruments for member states respecting their country specific recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure.”

Alluding to the fact that the European Central Bank (ECB) and the European Financial Stability Facility (EFSF) have recently signed a technical agency agreement, creating the possibility of an efficient conduct of market operations by the EFSF, the Eurogroup explains that as soon as the European Stability Mechanism (ESM) has been established, a similar agreement will be concluded between the ECB and the ESM.

Announcing that it has now politically endorsed the ESM investment policy guideline, the Eurogroup confirms that by the time of the entry into force of the ESM treaty and the formal approval by the ESM governing bodies, all ESM instruments will be fully operational so that their effectiveness and efficiency would be ensured.

On the issue of Spain, the Eurogroup states that it has “reached a political understanding on the draft MoU underlying the financial assistance for the recapitalization of financial institutions for Spain, to be provided via the EFSF until the ESM becomes available and then transferred to the ESM without gaining seniority status”.

It explains: “The Eurogroup envisages providing the final approval of the programme by July 20, after national procedures have been completed. The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014.”

The Eurogroup notes that the Commission, in liaison with the ECB and the IMF, are currently conducting their seventh review of the Irish adjustment programme, in the context of which discussions will be held on technical solutions to improve the sustainability of the programme, noting that the Eurogroup will consider the issue again in September.

The Eurogroup points out that it has requested that the Troika work together with the Portuguese authorities during the fifth review mission due to start on August 28 so as to ensure that the adjustment process "remains on track".

The Eurogroup also took note that a fully-fledged programme is expected to be negotiated with the Cypriot authorities.

Welcoming the Commission’s intention to present proposals in early September for a single supervisory mechanism involving the ECB, the Eurogroup emphasizes that it expects the Council to consider these proposals as a matter of urgency by the end of 2012.

It concludes: “In order to break the vicious circle between banks and sovereigns, technical discussions on the future ESM direct bank recaptialization instrument will also start in September so that the ESM could, following a regular decision, have the possibility to recapitalize the banks directly once an effective single supervisory mechanism is established.”

TAGS: tax | economics | fiscal policy | Spain | European Union (EU) | Europe

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