THE EUROPEAN UNION’S economics commissioner Olli Rehn has affirmed his desire to help Ireland achieve a deal on restructuring its banking debts – while also suggesting under-fire Spain could be given an extension to meet its own deficit deadlines.
Speaking at a European Parliament meeting in Strasbourg yesterday afternoon, Rehn said he remained hopeful that Ireland could be permitted to rearrange its Anglo Irish Bank promissory notes and other banking liabilities in order to lower the burden on the taxpayer.
Ireland was not at the top of the agenda, however – as Rehn confirmed that Spain’s €100bn banking bailout will not come with terms and conditions for the government itself, while also suggesting the country could be given more time to reach its deficit targets.
“There will be no new conditions on fiscal policy and structural reforms, because this is dealt with under the re-enforced economic governance and there the normal policy conditionality applies,” Rehn said.
The Finn added that the Spanish bailout was intended to be seen as “a very clear signal Euro area is willing and able to tackle the remaining challenges and in this context Europe is standing by Spain and supporting Spain in its challenges in order to restructure the banking sector”.
If the governments of Spain’s autonomous regions were able to cut back on their spending, and Madrid could present a “convincing” two-year budget plan, Rehn said its deficit-to-debt targets could be put back a year from 2013 to 2014.
The commissioner also outlined further plans for fiscal union, saying the most stable long-term solution to the eurozone’s debt crisis would be “stronger responsibility through a pooling of sovereignty at the European level, while at the same time also pooling our burden-sharing”.
However, deficit countries need to achieve surpluses to in order to bring the external debt in a declining trajectory.
This requires further improvements in competitiveness and it need to go hand-in-hand with the private sector deleveraging and the consolidation of public finances.
The cost of borrowing for the Spanish government rocketed yesterday, undoing the gains made after investors welcomed the €100 billion deal to recapitalise Spain’s banking debts.
This morning the cost of a 10-year loan to Spain breached the 6.5 per cent barrier, having yesterday fallen to just over 6 per cent.