Eurozone Under Pressure To Deliver

8 July 2012

BRUSSELS, (AFP) - Eurozone finance ministers will meet Monday to build on measures agreed last month to tame the debt crisis, seeking to provide fresh momentum as the economy slows and markets turn skeptical.

A June 28-29 EU summit was hailed as a breakthrough, promising fresh capital for Spain's struggling banks, a European bank union to keep the lenders in line and making it easier for the bloc's new bailout fund to help states in trouble.

The financial markets soared in response, with borrowing costs for Spain, Italy and other weaker eurozone members all falling sharply in relief that the 17-nation eurozone was finally getting to grips with the near three-year crisis.

This week, however, investors have turned increasingly dubious as critics note that the Spanish banks will have to wait some time for any aid until the European banking regulator is in place to oversee their restructuring.

As a result, Spanish long-term borrowing costs have jumped back to dangerously high levels at around 7.0 percent -- rates which forced Greece, Ireland, Portugal into seeking massive EU-IMF bailouts.

Significantly, Spanish Prime Minister Mariano Rajoy announced Saturday that Madrid would take fresh steps soon to cut its public deficit and called for speedy action on the summit agreements.

''What will really determine their success is that they turn into concrete realities, in a supple, quick and effective way,'' Rajoy said, adding: ''Europe must fulfill the accords as swiftly as possible.''

The new bailout fund, the European Stability Mechanism is still not operational pending full ratification while Germany, Europe's hardline paymaster, continues to insist tough conditions still apply to any help given.

Complicating matters further, Greece wants more time to implement its latest bailout, saying that while it accepts the tough terms, it needs some slack so as to ease the pressure on an economy stuck deep in recession for a fifth year.