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Eurogroup faces fresh Greek battle as Spain request looms

Roddy Thomson
Italian Prime Minister Mario Monti delivers a speech at the end of the G20 Summit of Heads of State and Government in Los Cabos, Baja California, Mexico, on June 19. Eurozone leaders faced mounting pressure from impatient G20 partners on Wednesday to accelerate integration, while Spain fought to avoid needing a full debt rescue.

Eurozone finance ministers meet on Thursday with hardliners demanding Greece make more sacrifices to get its economy back on track, Spain set to request a bank rescue, and Cyprus the latest victim of the two-year debt crisis.

The Eurogroup gathers in Luxembourg an hour earlier than normal, from 1400 GMT, for what is expected to be a late-night battle on the Greek and Spanish fronts but also touching on runaway borrowing costs for Italy and a last-minute Cypriot cry for help.

The talks come on the eve of a mini-summit in Rome of the leaders of the eurozone's big four -- Germany, France, Italy and Spain -- expected to dissect a plan for the eurozone rescue fund to intervene more easily on bond markets.

Thursday's talks, which will widen the next day to include the finance ministers of Britain and other non-euro states in another tough fight over calls to introduce a tax on financial transactions, are part of a marathon series leading up to a full European Union summit next week.

By Thursday and Friday next week, the eurozone is expected to have agreed the short- and long-term shape of a banking or financial union and steps towards closer political integration that economists see as essential to getting to the root of the debt crisis.

As ever, Greece looks like it will take up most of the protagonists' time, a day after conservative leader Antonis Samaras was sworn in as prime minister of a pro-euro coalition government hoping to negotiate changes to its own bailout programme.

Athens, to be represented by incoming finance minister Vassilis Rapanos, wants deadlines to be eased.

But opponents, while willing to bend on some of the roads taken, insist that the outcome must ultimately still meet the key bailout terms and conditions agreed in March after months of bickering.

"If we give more time, in the end that costs more money -- no two ways about it," a senior eurozone source told AFP.

Germany, the Netherlands and Finland are again playing tough, and this source underlined: "If the Greeks don't want to increase taxation, they can always cut defence spending."

Greek military prestige is an important issue, and Paris has already failed in a bid to have such spending removed from governments' general EU deficit and debt obligations.

"We see the room for maneouvre as being very limited," the source insisted.

"You could argue that if there has been a two-month slippage in Athens because of the elections, the Greeks just need to run a little faster over the next couple of months to make up for it."

Spain meanwhile is expected to make an official request at the meeting for loans to recapitalise its banks.

Following first audits in Madrid, another eurozone source said this would be for a sum "well within" an agreed outer band of up to 100 billion euros ($127 billion).

Cyprus is also seeking aid for its ailing banks, an EU diplomat said Wednesday.

The crisis-hit Mediterranean island will "first try to get a bilateral loan from Russia," said the diplomat, speaking on condition of anonymity.

Cyprus would then probably request eurozone aid for its banks next week along the lines of an offer made to Spain, he said.

Asked for comment, a spokesman for the Cyprus mission to the European Union told AFP Wednesday: "We are examining all possible options."

The United States, the International Monetary Fund and the European Central Bank have all urged greater banking integration in Europe, as the debt crisis boomerangs between financial sectors and sovereigns.