Finance ministers in the 17-nation eurozone met in Brussels Monday to discuss Spain’s growing budget deficit and Greece’s new $172 billion bailout.
The ministers sought explanations from Spain, the eurozone’s fourth largest economy, about why its deficit is expected to reach 5.8 percent of the country’s economic output this year – far above the 4.4 percent agreed upon with European leaders.
Eurogroup chairman Jean-Claude Juncker said the finance ministers told Spain to bring its 2012 deficit down to 5.3 percent. Delegates stressed Madrid must get back on target with its deficit in 2013 – below 3 percent of gross domestic product.
Last week, Greece secured agreements with private creditors to eliminate $142 billion of the debt it owed them. That cleared the way for the finance chiefs meeting in Brussels to give their assent to the Athens government’s second international bailout in two years. Greece says it needs the bailout to avert a default on its financial obligations later this month.
German Finance Minister Wolfgang Schaeuble said “there is no more doubt” that the rescue package will be approved, and that it will be signed later this week.
With Greece repaying its remaining debt over an extended period, the lenders will lose about three-quarters of their original investments on the country’s bonds.
Greece’s new bonds started trading at heavily discounted levels on Monday, about a quarter of face value. That signaled that investors remain wary of the debt-ridden country’s financial state and worry that it might not be able to carry out the sharp austerity measures the country has agreed to in order to win approval for the debt relief and bailout.
Italy, with the eurozone’s third biggest economy, confirmed that its economy has fallen into a recession, declining seven-tenths of a percent in the last three months of 2011, after a smaller slide in the third quarter. The Italian economy shrank with the government’s adoption of austerity measures to cope with its mounting debts.