European Union officials reached an “outline agreement” Thursday on a pact that would call on EU members to introduce legislation requiring balanced budgets, a move designed to calm fears over sovereign debt ahead of a January 29 crisis summit.
AFP – Negotiators reached an outline deal Thursday on a European pact to restore balanced budgets and Greece voiced hope it will secure a private debt write-down, as Italy and Spain sailed through their first bond auctions of the year.
Signs of mini-breakthroughs on big issues exercising European Union leaders in the run-up to their latest crisis summit set for January 29 should help alleviate some of the concern swirling around debt and currency markets.
In Brussels, progress towards a new treaty designed to reinforce fiscal discipline — one where states are to legislate for a commitment to balanced budgets — appeared quicker than initially imagined, sources told AFP.
“There is an outline agreement,” one negotiator said of the pact which 26 of the 27 European Union states, excluding Britain, pledged to back at the EU’s last summit in December.
A new legal draft will go before finance ministers meeting on January 24 in Brussels, with just “a few legal points” needing to be resolved, according to a second negotiator.
These centre on how to assess national legislation to enshrine the so-called “golden rule” leaders hope will convince markets that government debts will now be rendered sustainable, and how many countries need to ratify the new treaty before it takes effect, the sources said.
While its is not the biggest debt pile, the capacity of Greece to repay its borrowings without help from currency partners and creditors remains a problem — but the finance ministry in Athens said an agreement with banks to write off billions due to these private investors was also coming closer.
“By the end of next week, we could have the final outline for a deal with the private sector,” an official said, suggesting a “formal public offer” could be ready by the start of February.
Greece needs to strike an agreement satisfactory to the banks, without which problems can be expected to re-emerge over a second taxpayer bailout agreed among EU leaders in October.
Ahead of further talks with the Greek government in Athens on Friday, though, negotiators for the private sector said time is “running short” if that voluntary accord is meet the needs of all sides.
The so-called private sector initiative (PSI) has been expected to result in banks taking at least a 50 percent “haircut” on their Greek debt, which would remove about 100 billion euros ($127 billion) from Athens’ massive debt of 350 billion euros.
IMF chief Christine Lagarde has said aid to Greece would have to be raised by a “significant amount of tens of billions” of euros if the key deal cannot be wrapped up.
While governments are aware the bailout bill could yet rise once more, causing political problems for some, leaders got a respite with news Rome and Madrid had scored well in bond auctions.
Markets too responded positively to Thursday’s issues.
Italy raised 12 billion euros in 12-month bonds at rates that were less than half the level at an auction last month, while Spain rustled up nearly 10 billion euros in its sale — double the amount it had been aiming for.
Analysts said the auctions reflected an easing of market jitters as well as the influence of cheap funds made available to crisis-hit banks by the European Central Bank last month, which have encouraged some lenders to buy up bonds.
ECB head Mario Draghi said some of the debt-wracked eurozone countries were making “very substantial, very significant” progress on getting their finances in order and the markets were “showing some appreciation” of this.
Italy, with a debt mountain of 1.9 trillion euros ($2.4 trillion), an economy headed into recession and alarmingly high borrowing costs, needs to raise some 450 billion euros this year.
In its last auction of long-term debt last month rates remained close to the danger threshold of 7.0 percent.
Italian Prime Minister Mario Monti will host French President Nicolas Sarkozy and Merkel in Rome next week as the pre-summit build-up gathers pace.