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Euro Zone Postpones Greek Loan

Eurozone finance ministers have delayed a decision on giving Greece its next instalment of bailout cash.
It came after Greece said it would not meet this year’s deficit cutting target, sending shares lower on Monday.
A meeting set for 13 October, when finance ministers had been expected to sign off the next Greek loan, has now been cancelled.
As a result, Greece may not get its next loan tranche until November.
Yesterday’s Eurogroup meeting seemed like a blind date, as there were no properly prepared proposals or clear view of Greece’s final fiscal situation. Additionally, neither there was any assessment whether the PSI program would make the Greek debt sustainable nor agreement on strengthening the new EFSF role.
The climate reflects the overall awkwardness of the Council of Finance Ministers to address the triple crisis of the Eurozone: debt crisis, recession and a new cycle of financial instability.
Greece: While recession has changed the picture, relating to the amount of needed correction, the unforeseeable consequences of social unrest because of this corrections and the certainty that the agreed size of PSI program would not be able to make the Greek debt sustainable, the Eurozone FinMins opted once more to postpone decisions on the sixth instalment.
EFSF: The strengthening of the new financial assistance tool has two options, but face strong opposition: either granting the EFSF a bank licence to allow lending by the ECB or allowing the rescue fund to raise capital through the market.
Ministers and bankers have been divided, postponing once again activating the new toll, which is intended to defuse both the debt crisis and the crisis of bank recapitalization.
Trichet, Weidmann and Ackermann are strongly against both EFSF borrowing from the ECB and expanding the PSI program with a higher haircut.
They argue these proposals would destabilize the whole Eurozone and the euro in particular.
But Trichet’s successor at ECB, Mario Draghi reportedly favours EFSF borrowing from the ECB and intervening in sovereign debt purchases, but he does not favour increasing PSI program, if not clarified whether the EFSF could support the banks.
Thus, the problem is referred once again to the Berlin-Paris axis for a political solution, as Merkel and Sarkozy meet.
(source: Reuters, euractiv, capital)

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