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Euro-zone finance ministers: Spain has an extra yearto bring its
budget deficit under control
Germany's Constitutional Court is hearing testimony related to
several lawsuits seekingan injunction to delay the launch of the
euro-zone's 500 billion ($615.7 billion)European Stability
Mechanism until the court has determined whether Germanlegislation
ratifying the bailout fund and the fiscal pact are constitutional.
Mr. Schuble,arguing on behalf of the government, said any further
delay in launching the ESM could
add to uncertainty in financial markets about Europe's ability
to stem the euro-zone debtcrisis.
Euro-zone finance ministers gave Spain an extra year to bring
its budget deficit back inline with the bloc's rules and promised a
30 billion bailout fund for banks would beavailable by the end of
July. WSJ's Terry Roth discusses.
"A considerable delay of the ESM could mean further insecurity
on markets, and a lossof confidence in the euro-zone," Mr. Schuble
told the court, warning that delay couldexacerbate the problems of
weak euro-zone members and therefore pose"unforeseeable dangers" to
the German economy.
If the injunction against implementation of the ESM is granted,
it would be valid for up tosix months, Andreas Vosskuhle, president
of the court said at the opening of theproceedings, adding that a
final decision on the constitutionality of the ESM could bemade by
the end of the year.
"It is apparent that coming to a decision is not going to be
easy for many reasons," Mr.Vosskuhle told the court. "The court
will nevertheless resist the temptation to allow itselfto be led to
one side or the other by emotions and instead will decide on the
petitionswith both feet firmly rooted in the constitution."
Germany's parliament ratified legislation creating the ESM on
June 29 with anoverwhelming majority of votes from parties in
Chancellor Angela Merkel's center-rightcoalition and the
left-leaning main opposition parties. The ESM, which was
initiallyexpected to replace the temporary bailout fund, the
European Financial Stability Facility,on July 9 cannot go into
operation until all EU countries ratify the ESM treaty.
German euro-critics filed petitions with the Constitutional
Court immediately afterparliament's ratification of the ESM in an
attempt to persuade the court to block the
mailto:[email protected]
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bailout fund from taking up its activities until a final ruling
is made. One of the petitionswas launched by a group of academics
led by Peter Gauweiler, a former Bavarianpolitician who has long
opposed the euro currency. Another petition was filed by
HertaDubler-Gmelin, a Social Democrat and former justice minister,
on behalf of 12,000German citizens.
The ESM and the 440-billion EFSF together constitute the
euro-zone's firewall againstthe spread of financial contagion. The
bailout funds provide loans to struggling euro-zone governments to
finance their budgets and provide aid for governments torefinance
weakened banks. The fiscal pact is at aimed at increasing
Europeanenforcement of budget discipline in the 17 countries that
use the euro currency. Theplaintiffs argue that ratification of the
ESM and the fiscal pact are unconstitutionalbecause they force
parliament to give up too much control of the federal budget.
The court is expected to hear testimony, including expert
testimony from JensWeidmann, president of the Deutsche Bundesbank,
Germany's powerful central bank.
The court isn't expected to make a ruling on the injunction
against the ESM.
Spanish borrowing costs have climbed lately
Madrid was given until 2014 instead of 2013 to cut its
government deficit to below 3% ofgross domestic product. Tweaking
Spain's budget targets would let Madrid run a deficitof as much as
6.3% of gross domestic product this year, instead of 5.3%, without
riskingfinancial penalties, according to a draft statement reviewed
by The Wall Street Journal.The 2013 deficit target would be 4.5% of
GDP and the 2014 goal would be 2.8%.
Many economists have feared that cutting public spending too
quickly could push Spain
even deeper into recession, just as it scrambles to deal with
massive problems in itsbanking sector. But Madrid and some other
euro countries worry that letting go of theambitious budget targets
could drive the country's funding costs even higher.
Finance ministers also moved closer to finalizing the conditions
Spain must meet to getas much as 100 billion ($123 billion) from
the euro zone to recapitalize local banksreeling from the
real-estate meltdown in the country.
Ministers agreed the bailout funds would ready 30 billion by the
end of this month incase any banks needed to be recapitalized
urgently. However, the final size of thebailout request may not be
settled until September, after a detailed review of bank asset
quality and individual bank stress tests had been completed.
Thomas Wieser, who chairs meetings of senior euro-zone
officials, said Spanish bankswould transfer loans to an "asset
management company." Spain's government has longresisted calls to
set up such a single "bad bank"preferring to create smaller bad
bankstied to each individual lenderclaiming a sector-wide
arrangement would reward theweakest banks. Mr. Wieser said that
asset sales from the company would go towardearly repayment of the
loans from the bailout funds.
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German finance minister Wolfgang Schuble said there would be
strong regulations ofsalaries for managers of banks that receive
state support.
Spanish borrowing costs have climbed recently, partly due to
uncertainty over the way itwill ultimately receive aid for its
banks. At the moment, the euro zone's bailout funds can
lend money only to governments, which means the support for
banks will drive upSpain's debt levels.
The ministers also asked Luxembourg Prime Minister Jean-Claude
Juncker to continuechairing their regular meetings and nominated
Luxembourg Central Bank GovernorYves Mersch to a seat on the
European Central Bank's powerful six-member executiveboard.
In addition to that, the ministers asked Klaus Regling, the
managing director of theircurrent bailout fund, the European
Financial Stability Facility, to also head its successor,the
European Stability Mechanism once it comes into operation later
this summer.
Date: july 11. 2012
Mircea Halaciuga, Esq.
004.0724.58.1078
PROXEMIS - Managementul Riscurilor
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