Fitch Ratings upgraded Greece's long-term sovereign credit rating from 'Restricted Default' to B-, the lowest level before highly speculative territory, after the Hellenic country completed the private sector involvement (PSI) debt swap.
The ratings agency notes a successful debt restructuring could put upward pressure on Greece's ratings and that the country's debt/GDP ratio could gradually decline to around 120% of GDP by 2020.
Fitch assigned 'stable outlook' to Greece and said that "future rating actions will be driven by Greece's performance against the parameters of the new EU-IMF programme and the sovereign's capacity and willingness to honour its restructured debt obligations".
Eurogroup divided on the financial transaction tax
During the second day of the Eurogroup meeting EU finance ministers turned their attention to the implementation of the financial transaction tax, IMF's contribution to the Greek bailout and Hungary’s deficit problems.
No agreement has been reached on the financial transaction tax so far however, as EU finance ministers remain divided on the issue. It was decided that more studies need to be carried out on the amount of taxes banks pay before examining the matter further. Initially the implementation of the tax was planned for the second half of 2014, but France and Germany are insisting on speeding up the process.
Various factors concerning the tax still need to debated. Luxembourg's Finance Minister Luc Frieden emphasized that “there are lots of unanswered questions, especially the one of the competitiveness of European financial centres.”
“You have to bear in mind that centres outside of Europe such as New York and Singapore won't introduce the tax so that's why we as Luxembourgers see big questions we would like to have answered first,” he said.
Swedish finance Minister Anders Borgs pointed to the adverse effects the tax might have: “It would increase the households' lending costs. It would increase the cost of capital for companies. It would increase the costs for governments.”
EU finance ministers are set also to vote on the suspension of the 495 million euro rescue fund for Hungary, due to the country's failure to comply with the deficit targets set by European Commission.
The European Council reproved Hungary on its widening budget deficit several times since 2005. Currently forecasts point to it reaching 3.6% GDP in 2013.
Eurogroup endorses Greek aid
After months of arduous negotiations EU finance ministers finally gave the green light to the second, 130 billion euro bailout package for Greece late on Monday. The aid will be formally approved on March 14.
The country is to receive 100 billion euros from the EFSF in several payments throughout a period of three years, with the first one to be released this month. On March 15 the IMF is still supposed to hold a vote on its contribution to the rescue.
Luxembourg PM Jean-Claude Juncker who chaired the meeting confirmed that the bailout plan was already under way, “politically adopted” by the Eurogroup. Greek Finance Minister Evangelos Venizelos expressed his satisfaction with this outcome and stressed Greece's firm commitment to implementing the austerity plan which will not be shaken by the upcoming elections.
The International Monetary Fund will be discussing a third bailout for Greece at its meeting later this week, former IMF first deputy managing director John Lipsky told CNBC on Monday.
When asked whether another bailout for Greece was under discussion Lipsky said: "There is a program that has been discussed and is up for agreement and approval. This is the program that they're discussing."
Lipsky said Greece needs to be more effectively integrated into the euro zone and that the "most important thing for Greece is structural reforms to make that economy more productive and effective".
He also said that the G20 have been working behind the scenes to provide a framework for strong, sustainable, and balanced growth, and a mutual assessment process to implement a set of coherent international policies.
Spain faces a tighter deficit target
Earlier on Monday EU finance ministers demanded from Spain a more substantial reduction of deficit than to what the country had previously agreed. The Eurogroup established a new deficit target of 5.3% versus the 5.8% set by the country's PM Mariano Rajoy two weeks ago.
According to the statement issued after the meeting: “The Eurogroup assesses that the timely correction of the excessive deficit should be ensured by an additional frontloaded effort of the order of 0,5% of GDP, beyond what has already been announced by the Spanish authorities so far, and by an early adoption and strict implementation of the new mechanisms in the Budget Stability Law on the monitoring and control of budget compliance at different levels of government."
“We stressed the importance of substantial progress made with structural reforms to boost employment and growth so far, which would need to be complemented with further efforts in the areas of product and service markets.”
This places Spain in a tough situation as its unemployment has already reached 23%, which is the highest level in the EU, and the economy is expected to enter recession this year.