Eurozone nations to tighten economic oversight to stem government debt crisis

Eurozone to tighten economy oversight

MADRID — Eurozone nations agreed Friday to tighten joint oversight of the economies in Europe’s currency union in an effort to stem a government debt crisis that has already forced them to offer billions of euros to Greece if it can’t borrow from markets.

Greece gave no indication at a meeting Friday of finance ministers from the 16 nations that use the euro that it would soon seek to tap the financial lifeline agreed on last weekend.

Markets reacted badly, charging more for Greek bonds and widening the spread, or the difference between Greek and benchmark German 10-year bonds, to 4.31 percent, close to an April 8 all-time high of 4.48 percent.

Greek stocks were also down, with the benchmark general index at Athens stock exchange closing 1.64 percent lower at 1,995.24 points, after Jean-Claude Juncker, the head of the eurozone finance ministers’ group, said Greece gave no indication that it was requesting a bailout.

The Greek government called in EU and International Monetary Fund officials for talks in Athens Monday but insisted this was not a signal that it would formally request a bailout within days.

Last week, it secured a pledge for euro30 billion in loans from other eurozone nations — with possibly another euro15 billion from the IMF yet to be agreed.

French Finance Minister Christine Lagarde said eurozone ministers discussed whether that loan would be sufficient and whether they needed to make any changes to EU treaties — which could require parliament approvals and public votes in the EU’s 27 nations.

“The matter is rolling. It’s work in progress now,” she said of the bailout package, refusing to comment on the lackluster market response.

Markets have hiked Greek borrowing costs because they believe the country might be unable to repay debt. Greece needs to borrow some euro54 billion this year, euro11 billion of that next month and says the high costs could force it to seek a bailout from eurozone nations and the IMF.

Greece’s flagrant flouting of EU debt and deficit limits has triggered drop in the euro’s value against the dollar and exposed the flaws in the loose way eurozone governments are supposed to coordinate their economies.

Juncker said eurozone nations would step up oversight over member economies to prevent another vulnerable country getting into financial trouble. This widens the eurozone’s peer review beyond a limited focus on debt and deficit limits — and will allow them flag up wider problems with slow growing economies with high jobless numbers, like Greece and Portugal.

Spain and Finland would come up for review first, followed by Portugal and Luxembourg, he said.

Both Spain and Portugal have rising debt levels and have attracted some attention from markets looking to see if Greece’s debt problems could spread to other vulnerable euro economies which are facing high unemployment and sluggish economic growth.

Portugal received a warning from the European Union’s executive commission this week that it might need to make bigger budget cuts if a hoped-for economic recovery fails to provide extra revenue the government is counting on.

Most eurozone nations are now running deficits above the EU’s maximum 3 percent and are promising to reduce those over the next few years.

The EU’s economy commissioner Olli Rehn said he wanted to check eurozone states’ budget spending before parliaments do and should monitor how euro member economies are performing. This could prevent a country like Greece overspending and failing to reform its economy.

He criticized eurozone members for “rather optimistic” assumptions that the economy would bounce back quickly — warning that many of them may need to increase budget cuts if they aren’t on track to bring down deficits.

EU officials are also warning that richer euro nations, like Germany and the Netherlands, need rely less on exports and consume more, saying they could help rebalance wide differences in the euro area by stoking domestic demand and investment.

Belgium and Ireland’s ministers missed the eurozone talks as volcanic ash held up flights in northern Europe. Swedish and Danish ministers were also due to skip the broader meeting of all 27 EU members starting later Friday.

____

Associated Press writers Greg Keller and Ciaran Giles in Madrid and Nicholas Paphitis and Elena Becatoros in Athens contributed to this story.