The European Union has made a long way during the 2 years of debt crisis. Learn what's behind and what's ahead on the road by reading the articles and interviews that the FXstreet.com team wrote as part of the special content The European Debt Crisis Chronicles.
The European Union seems to be heading to banking union after German Chancellor Angela Merkel said on Monday that she will be discussing banking supervision with the European Commission President Jose Manuel Barroso.
EU Barroso and German Chancellor note the need to differentiate between short-term and long-term responses. The leaders said proposing long-term solutions during crisis, will not end it, and unless banks in Spain and in the euro zone find new funding soon, long-term ideas are useless.
Barroso said there will be a push for a banking union at this month's EU summit and that he will do whatever is necessary to ensure the region's stability. Merkel reiterated more of Europe is needed in the euro zone, not less, and said EU needs answers soon on political union.
In the same line, seems Spain is obtaining good news on Monday as far as the EU might allow direct bank recapitalization despite the European Commission has until now flatly rejected the possibility of EU banks being recapitalized through ESM funds. Olli Rehn told reporters that Brussels is now considering this option.
EU Economic and Monetary Affairs Commissioner said that "this is not part of the ESM (bailout fund) treaty for the moment, in its present form, but we see that it is important to consider this alternative of direct bank recapitalization as we are now moving on in the discussion on the possible ways and means to create a banking union.”
G7 To hold conference call on Europe Tuesday morning
Finance ministers and central bank governors of the Group of Seven (G7) most powerful nations will hold a conference call on Tuesday morning amid the acceleration of the EU debt crisis, which has led to fear the situation may get out of control.
For some, the sovereign debt crisis is beginning to resemble Lehman Brothers circa back in Sept 2008. Spanish banking crisis will be on top of the agenda.
"There's a heightened sense of alarm over developments in Europe, particularly in Spain," said one G7 source cited by Reuters, speaking on condition of anonymity due to the sensitivity of the matter.
"Markets remain skeptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen. So we obviously believe that more steps need to be taken," White House press secretary Jay Carney told reporters.
S&P sees 30% possibilities of Greece leaving the Eurozone
Standard & Poor's Ratings sees 1 in 3 chance of the Hellenic country exiting the euro area in the coming months according to a report published today on likelihood of Greece leaving the unique currency and its potential contagion across the bloc.
S&P believes "there is at least a one-in-three chance of Greece exiting the Eurozone in the coming months, following national elections on June 17," says the report.
"This could be brought about by Greece rejecting the reforms demanded by the troika and a consequent suspension of external financial support," continues the S&P paper.
"However," S&P concludes, "we note that the potential impact on other "peripheral" sovereigns in the Eurozone would be less clear cut. We believe that other sovereigns would be unlikely to follow any Greek exit."
It seems that pressure over Greece is diminish as market believed 50% chances of Grexit last week.
Portugal successfully passes latest bailout review
The EU, ECB and IMF announced on Monday that Portugal has successfully passed the fourth quarterly revision of its bailout program. Despite difficulties, especially growing unemployment, the Portuguese government managed to meet Troika's bailout requirements.
"The need to combine fiscal consolidation with deleveraging private balance sheets while restoring external cost competitiveness remains a difficult balancing act," states the official document. "But the authorities are determined to stay the course of adjustment and reform."
Troika affirmed that Portugal’s aim to reach the deficit target of 4.5% GDP in 2012 remains viable, while the debt-to-GDP ratio in 2013 is expected to be higher, at 118%.
The positive outcome of the review means that the EU can release the next tranche of aid amounting to 4.1 billion euros. Portugal will most probably receive it in July. The next revision is scheduled for September 2012.
On Monday it was also made known that Portugal's largest banks will receive recapitalization funds of about 6.45 billion euros. The Portuguese government will allot for that purpose a part of the bailout money received from the Troika in 2013.
Rajoy calls for a tighter EU banking union
Speaking at an event in the Spanish coastal town of Sitges on Saturday President Mariano Rajoy urged EU officials to consider creating a Eurozone fiscal authority which would control national budgets and debt levels.
“The EU needs to reinforce its common institutional architecture so that investors regain confidence in the single currency,” said the Spanish President adding that his government has already done all it could to enhance liquidity and now it is time for the EU to step in: “Spain will emerge from the storm through its own efforts and with the support of our European partners.”
Rajoy stressed that the ECB could not handle the situation on its own and it was necessary to create an authority which would watch over fiscal policy in the Eurozone and manage its members' debts. Such a move would also assure the markets that the euro is not facing a breakup.
Additionally, the Spanish President said that his government would present a recapitalization plan for Spain's distressed banks by the end of June. According to an article in Der Spiegel Angela Merkel has been pressing Rajoy to accept international aid, which Spain could use for rescuing its troubled financial institutions. But the Spanish President is reluctant to accept it, persistently trying to spare the country the bailout stigma.
The BNP Paribas team of analysts consider this perception of bailout funding a hindrance in the fight against the European debt crisis: “Appeals to financial support create stigma and fail to restore investors’ confidence. Greece, Ireland and Portugal waited until their backs were against the wall before calling for help. Inevitably this means a greater financial and social cost in the end, and for both lenders and borrowers.”
Also on Saturday German Chancellor Angela Merkel reiterated her opposition towards the creation of Eurobonds.
