EUROPEAN DIARY: IT'S COLD, damp, cloudy and dark on the Kirchberg plateau, which overlooks the tiny city of Luxembourg. It's here that finance ministers gathered yesterday for crunch talks on Greece and foreign ministers discussed Syria and Libya.
There are not a lot of beaming smiles to be seen on occasions like this. But Minister for Finance Michael Noonan could not conceal his delight yesterday as his counterparts lifted preferred creditor status from the permanent euro-zone bailout fund should Ireland, Portugal or Greece need aid.
In theory at least, this should make it easier for Ireland to regain access to private debt markets next year. It should also improve the Government’s prospects of avoiding aid from the European Stability Mechanism fund, which comes into operation in mid-2013. Noonan believes the theory. “This is very good news for Ireland,” he said.
When ministers agreed terms for the stability mechanism last March, they declared that the fund would have preferred creditor status in any sovereign rescue. This means that it would be paid back first in any default scenario, with private creditors left at the back of the queue.
That is not exactly enticing for investors, who might feel Ireland was worth a punt on the strength of a (still hoped-for) recovery taking hold. Indeed, the fear in Government circles was that such measures were so strong a disincentive to invest that they increased the risk of an eventual application for aid from the stability mechanism.
With Ireland’s borrowing costs already at record levels thanks to the turmoil in Greece, the development marked a rare break for the Government.
Although some Dublin sources believe the campaign for a cut in the bailout interest rate might bear fruit soon, Noonan said he hadn’t had an opportunity to discuss the matter properly with his French counterpart, Christine Lagarde. The power here, however, rests with French president Nicolas Sarkozy and no one seems to know whether he is prepared to change his mind.
The mood in Luxembourg was downbeat on Greece. Baggy-eyed ministers didn’t finish talking until almost 2am yesterday and they went back to the table only a few hours later. They were scheduled to stay until after dinner last night.
As the vice tightens relentlessly, a sense of unpredictability and foreboding prevails. The message seems to change by the day.
The new Greek finance minister, Evangelos Venizelos, is reputed to have introduced himself in portentous terms when shaking hands in the conference room with his Finnish counterpart, Jyrki Katainen, who is poised in the very near future to become prime minister. “I’m the new victim,” Venizelos said. It said a lot.
No one knows if Greek prime minister George Papandreou can survive a confidence motion in Athens tonight. No one knows either whether Greek MPs will endorse a drastic new austerity drive in the coming days.
Although finance ministers say they are ready to release the next €12 billion for the Greek bailout, they also say it will happen only if parliament approves the plan.
Despite public expressions of confidence from senior European figures that the Greek parliamentarians will reluctantly do the deed, severe doubt remains as to their willingness to follow through to the execution stage. The plan requires Greece to sell one state asset every 10 days. Dangers lurk at every stage.
The ministers upped the ante yet again yesterday, handing down a 12-day deadline for a positive parliamentary vote.
Greece will run out of cash without the €12 billion. Time is running short and patience has run out. In public, ministers laud the Herculean efforts of Papandreou and his ministers. In private, officials make no secret that patience with the Greeks has evaporated. In the bailout zone, terms and conditions apply.
Why meet in Luxembourg? Thanks to the old European habit of sharing the action between member states, the ministerial juggernaut moves for three months of the year to the Grand Duchy. Hundreds of diplomats, officials and reporters follow the ministers.
At its very best, the city is a picturesque place with dramatic vistas, fairytale castles and sleek skyscrapers. At its worst, the cityscape is as glum and dull as any other capital. The Kiem conference centre, scene of the talks, falls decidedly into the latter category.
The building, opposite a shopping centre and multi-storey car park, is essentially a warehouse kitted out with partitioned meeting rooms. National flags flutter wanly by the front door. The side entrance, reserved for journalists, would not look out of place in a meat factory.
The air is poor and the light is dim. There are no chandeliers, no art on the walls, nothing to suggest high politics and low brinkmanship. Yet it is here, for a few hours at least, that a key phase of the debt saga is being played out. The setting couldn’t be more ordinary, but the air of uncertainty is as great as it ever was.
