A Flurry Of Diplomacy Ahead of Eurozone Crunch In September
By Jack Duffy
PARIS (MNI) - Eurozone leaders will begin gearing up this week for a crucial month that could be a turning point, for better or for worse, in the three-year-old debt crisis.
Kicking off a flurry of shuttle-diplomacy, Greek Prime Minister Antonis Samaras will meet on Wednesday with Eurogroup President Jean-Claude Juncker in Athens. On Thursday, French President Francois Hollande flies to Berlin for talks with German Chancellor Angela Merkel. On Friday, Samaras meets with Merkel in Berlin and then heads to Paris for talks with Hollande on Saturday.
Merkel is also expected to meet with Italian President Mario Monti before the end of August and with Spanish Prime Minister Mariano Rajoy during the first week of September.
The intense round of talks precedes a September crunch-period that includes a series of events of potentially critical importance for the future of the Eurozone.
On September 6, European Central Bank President Mario Draghi is expected to present details of the ECB's bond buying plan after the bank's monthly council meeting. In addition to hints on the size and timing of interventions, the markets will be looking for clarification of the ECB's status as a senior creditor and whether the new bond buying will be sterilized or not.
On September 11, the European Commission is scheduled to unveil its eagerly-anticipated proposal to put the ECB at the center of a new centralized bank supervision system for the Eurozone. Getting the new supervisor in place is a precondition for Europe's permanent bailout fund, the European Stability Mechanism, to recapitalize banks directly, which would avoid saddling sovereign governments with additional debt.
Among many questions surrounding the proposal is whether the ECB will supervise all Eurozone banks or just the 25 largest ones.
On September 12, Germany's Constitutional Court will deliver its ruling on whether the ESM and the EU's new Fiscal Compact treaty are acceptable under German law. Although the court is not expected to block the ESM, it could demand that German lawmakers be given greater political oversight of the fund.
The same day, voters in the Netherlands go to the polls in an election that could see the austerity-wary Socialist Party emerge on top. The Dutch Socialist leader Emile Roemer has criticized what he has called the "accountants' obsession" with keeping budget deficits below 3% of GDP and said he would seek a referendum on the Fiscal Compact treaty.
Eurozone finance ministers and central bankers will meet in Nicosia, Cyprus on September 14, where the top subjects will likely be Greece and Spain.
Draghi has said the ECB will only come to the aid of a country that formally seeks help from Europe's bailout funds and signs a memorandum of understanding agreeing to specific conditions. Spain's prime minister Rajoy has left the door open to making such a request but has said he wants to see the details of Draghi's plan first.
Spain is set to raise about E50 billion between now and the end of the year, and according to reports circulating in financial markets last week, one think tank estimates that Europe's bailout funds could buy up to half that amount if Rajoy requests the aid.
Greece is also facing a showdown in September as inspectors from the Troika - the Commission, the ECB and the International Monetary Fund - return to complete their report on whether Athens is in compliance with its second bailout agreement. A positive report is essential for the Eurogroup to unblock the next E31.5 billion aid tranche. If the troika report is not ready by September 14, Eurogroup ministers will have to take it up at their subsequent meeting in Luxembourg on October 8.
Possible efforts by Greece to stretch out its austerity program by two years will meet with firm resistance from its northern neighbors. Austria's Foreign Minister Michael Spindelegger said in an interview Friday that the Eurozone should create a mechanism to legally eject members that do not meet deficit and other criteria.
"September will be a month with many risk factors," says Nicolas Veron, a senior fellow at the Brussels think tank Bruegel, which is now chaired by former ECB President Jean-Claude Trichet. "I have a particular concern about Greece, which remains a burning issue, but there are many things that could go wrong," Veron said.
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