European leaders, including German Chancellor Angela Merkel, are set on exploiting the momentum to lock in a final response to the crisis and hold the euro area together.
Greek Coupon
The parties were nearing an agreement under which old bonds would be swapped for new securities with coupons averaging between 4 per cent and 4.5 per cent, according to a person with knowledge of the discussions three days ago. Germany and the International Monetary Fund are now insisting on an agreement closer to 3 per cent. EU governments negotiating for a new rulebook on fiscal policy are hewing to an agenda championed by Merkel and the ECB. The latest draft of the fiscal pact bows to ECB President Mario Draghi’s call for governments to honour their commitment on spending discipline to restore credibility.
Permanent Rescue Fund
The proposed treaty will require a centralised “correction mechanism” to be triggered automatically in cases of “significant” deviations from a target structural deficit of 0.5 per cent of GDP, according to a draft dated January 19. Reflecting German demands, countries would have to enact “binding and permanent” balanced-budget rules.
Ministers today will also discuss a separate draft accord on Europe’s planned permanent rescue fund that eases earlier provisions on debt restructuring. The proposed agreement still calls for clauses in bond contracts that would prevent small groups of investors from blocking a decision, while deeming write-offs “exceptional” and subject to IMF standards, according to a draft.
German finance minister Schäuble reiterated that leaders will assess the amount of bailout funding in March. The permanent fund, the European Stability Mechanism, will remain at €500 billion for the time being. “We’ll take that time”, Schäuble said.
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