News Column

EU ministers grant Cyprus loan tranche; worry over Greek reform lull

June 19, 2014

Luxembourg (Alliance News) - Eurozone finance ministers approved the next bailout tranche for Cyprus on Thursday, praising its reform progress, amid concerns that neighbouring Greece is veering off its path to economic health.

"Cyprus's positive track record ... has played an important role in enhancing confidence and permitting the successful return to the financial markets," the ministers said in a statement issued after their talks in Luxembourg.

The decision puts Cyprus on track to receive 600 million euros (813.6 million dollars) from the eurozone's bailout fund in the first half of July, the ministers said, with the International Monetary Fund expected to contribute a further 86 million euros.

But Jeroen Dijsselbloem, the chief of the Eurogroup of eurozone finance ministers, warned Greek Finance Minister Gikas Hardouvelis that his country must fulfil all its reform commitments.

Athens has so far failed to reach six milestones set for the end of May - with a further six to follow in June - which would each trigger the release of 1 billion euros from its 240-billion-euro international bailout.

They broadly cover reforms to the tax, labour and healthcare systems; changes to the transport sector; social security reforms; and an opening up of closed professions.

"The money will only flow when the conditions are met," warned Austrian Finance Minister Michael Spindelegger.

Cash-strapped Athens, which depends on its bailout payments to stay afloat, has repeatedly struggled to stick to its reform timetable. Many of the measures are deeply unpopular with voters.

"I am concerned about the slowing-down of the process of reforms in Greece," Rehn said. "It's important that Greece will be able to come back to the path of serious economic reforms."

But German Finance Minister Wolfgang Schaeuble praised Greece's "extraordinary" achievements, and said the country deserved respect for having to "constantly take decisions that are politically very difficult to implement."

Hardouvelis, who was appointed in a government reshuffle last week, has indicated that he will continue the country's austerity path.

Thursday's talks were overshadowed, however, by a debate over relaxing the bloc's economic rules, days after German Economics Minister Sigmar Gabriel took an unexpected shot at the budgetary rigour championed by his country.

He proposed giving states more time to tackle their deficits, in return for reform commitments.

But Schaeuble said the German government thinks "the existing rules have enough flexibility," adding, "It is not necessary to change the rules, but to follow them."

France is among those countries that would like to see a stronger emphasis on growth and job creation. Foreign Minister Michel Sapin on Thursday suggested adapting the current guidelines.

"The rules are the rules - you simply need to find the right rhythm for each of our countries," Sapin suggested ahead of the talks.

Dijsselbloem later said that all ministers had "stressed the importance to stick to the rules as they are now." But he announced that a review would take place at the end of the year into rules granting the commission greater scrutiny of national budgets.

Rehn said that such a review clause is "baked in" to the so-called two-pack and six-pack rules. "We have a good chance of assessing what works and what might be improved in this context," he added.

Meanwhile, International Monetary Fund (IMF) chief Christine Lagarde said the EU should pay less attention to fiscal deficits and focus more on the ratio of countries' debt to their gross domestic product, as this would help encourage growth.

She made the comments in Luxembourg, as the IMF issued its annual eurozone recommendations. The Washington-based organization warned that the eurozone's recovery "is neither robust nor sufficiently strong."

"Much higher growth is needed to bring down unemployment and debt," the IMF wrote, adding that economic activity has not yet reached pre-crisis levels and that inflation is "worryingly low."

Lagarde recommended, among other things, that the European Central Bank should consider the large-scale purchase of government assets "if inflation remains stubbornly low." Such a programme would boost confidence, improve corporate and household balance sheets and stimulate bank lending.

"Overall, it holds the potential to have a significant impact on demand and inflation," the IMF said.

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Source: Alliance News

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