Finance Ministers meeting in Europe agreed on a series of measures for Spain. First, they authorized a first installment of 30 billion euros for lending to Spanish banks, subject to approval from Eurozone governments. The money will be distributed by the end of the month, a faster schedule than previously considered. The real question is who is held responsible for the lending, the Eurozone bailout facility or the sovereign government. The assumption at the EU summit was the former, but talk that governments are actually ultimately responsible caused Spanish debt yields to soar, leading to this emergency action.
Second, the finance ministers agreed to slow down the austerity demands for the Spanish government.
At the same time, Spain’s targets for cutting its gaping budget deficit will be eased as the country sinks deeper into its second recession in three years, with an unemployment rate of almost 25 percent. But the ministers demanded that Spain squeeze its austerity budget even tighter to meet the new targets.
“I would expect that some additional measures will have to be taken rather soon,” the European Commission’s vice president, Olli Rehn, said at the news conference.
For its part, the European Commission had proposed that Madrid’s deficit target this year be relaxed to 6.3 percent of gross domestic product, from 5.3 percent earlier. Madrid also would get an additional year — until 2014 — to bring the deficit below 3 percent of G.D.P., which is the target for all euro zone countries.
As you can see, this does not eliminate austerity measures, it just puts them over a slower timeline. That’s what Greece requested, and there was some thought that this could give Greece more leverage to demand such a rejiggering. But the Greek government was already told they cannot renegotiate the bailout terms, and they gave up on the idea. This has led to resignations within the government:
In the latest resignation to rock Greece’s beleaguered government, Deputy Labor Minister Nikos Nikolopoulos abruptly quit Monday, saying the recently formed conservative-led coalition was compromising its campaign pledges to renegotiate the harsh terms of international rescue loans.
The top-tier resignation, the third in three weeks, highlighted the pitfalls Prime Minister Antonis Samaras faces in his attempt to steer an awkward, three-party coalition through the most acute economic crisis in recent Greek history.
Nikolopoulos’ letter of resignation landed like a bombshell on the prime minister’s desk early Monday, just hours after the coalition had won a resounding vote of confidence in Parliament.
“The sole reason for my resignation,” the deputy labor minister wrote, “is my personal conviction that the issue of renegotiating with [Greece's international lenders], as well as the correction of significant distortions in labor, pension, social security and welfare issues, should have been emphatically put on the table from the start.”
The Greek coalition is simply not stable, as one would expect in the midst of a depression. It’s likely to crack up sooner, rather than later.