The EU reaches a watershed moment this week with the deadline for private creditors to write down Greek debt, one leaders hope will prove momentum has swung in the battle to beat the debt crisis.
Despite Spain warning that its budget deficit will miss an EU-agreed target by tens of billions of euros this year and with recession also forcing the Netherlands and Belgium to re-do their sums, the view remains that a corner is being turned.
“We’re not out of the economic crisis, but we are turning a page on the financial crisis,” said French President Nicolas Sarkozy after a rare pressure-free European Union summit on Friday.
Economists looking at the bigger picture agree.
“The risks and focuses are beginning to shift away from Europe,” said Erik Nielsen, chief economist for Milan-based UniCredit in a regular briefing note to investors.
Citing Iranian political tensions and rising oil prices, the return of Vladimir Putin to the Russian presidency, Chinese exposure to weakening global demand and the US election race, he said this build-up of external variables was “a reminder that it’s not only Europeans having to live with political theatre and uncertainties.”
Thursday sees the end of the offer period for private investors to swap legal papers on an unprecedented write down of Greek public debt ‒ at a target haul of EUR107 billion (US$141 billion) in torn-up bond value, of comparable scale to international defaults of the past.
And on Friday, if take-up appears to be on course, euro finance ministers will open the purse strings on an associated new financial lifeline for Greece, heavily-conditioned but eventually worth EUR130 billion in loans with more to come from the IMF.
Speculation among politicians and in media has kept the prospect of a “third” bailout on minds, as Greece works through a seismic economic adjustment hand-in-hand with EU backers.
But powerhouse economy Germany is also inching ever closer to boosting the available resources in a financial firewall designed to convince investors their monies are in safe hands.
The treaty to proscribe excessive deficits and debts, signed Friday, by 25 EU states but not Britain or the Czech Republic, made an inauspicious debut with Spain’s confirmation that it wants the EU to ease this year’s agreed deficit target of 4.4 per cent of GDP to 5.8 per cent.
But the EU appeared to acknowledge that Spain was suffering from extra pressure stemming from a post-property bubble collapse in employment.
European leaders also know that there is scope in the treaty to evade or postpone the toughest decisions, with Lithuania President and former EU budget commissioner Dalia Grybauskaite talking of “eagerness” among some countries to “interpret differently” the rules set down, using different statistical methodologies to bend them.
“We’ve seen this before,” she told AFP. “I (just) hope the pressure from outside will be heavy enough not to allow member states and the (EU) institutions to take such interpretations before everything is implemented,” she said, referring to the markets.
However, despite another busy month of scheduled and anticipated talks for the euro finance ministers ‒ against the backdrop of an IMF meeting to set parameters for raising its resources ‒ the next EU summit is not scheduled until June 30.
And a new poll in a respected business newspaper in Ireland has found voters there leaning comfortably towards ratifying the fiscal treaty in an upcoming referendum.