A crucial 48 hours for the eurozone

Greek government talks, rules for banks, and the new French president’s first engagements will be major issues this week.
A series of events this week will shape the course of the European Union’s policies to stabilise the eurozone.

The leaders of Greece’s main parties will continue talks to form a government of national unity following an inconclusive election on 6 May, which saw support for the main centre-right and centre-left parties drop below 50% for the first time since democracy was restored in the 1970s.

Party leaders are deadlocked over how important it is to entice Syriza, a left-wing party that opposes Greece’s international bail-out and that came second in the election, to join or at least support such a unity government. The Democratic Left, which has emerged as a kingmaker, says it will enter a coalition with the main centre-left (Pasok) and centre-right (New Democracy) parties only if Syriza is also on board. Without the Democratic Left, a unity government of Pasok and New Demoracy would fall short of a majority in parliament.

The continuing deadlock has prompted increasing talk about Greece’s possible exit from the eurozone, including from members of the governing council of the European Central Bank (ECB).

Eurozone finance ministers will meet in Brussels later today to discuss the situation in Greece and in Spain, as the latter attempts to meet deficit-reduction targets following the use of €4.5 billion of public money to prop up an ailing bank last week. The European Commission said on Friday (11 May) that Spain would be in recession for the coming two years and that it needed to impose additional budget cuts to meet deficit targets.
Bank rules

The finance ministers of all EU member states will be in Brussels tomorrow (15 May), seeking to finalise new bank-capital rules. The rules are supposed to make Europe’s banks less vulnerable to financial shocks by forcing them to hold more core capital. The British government, which blocked a deal earlier this month, appears to have eased its opposition to the rules, and there is a general expectation that a compromise will be found.

Negotiations with the European Parliament will then begin in earnest. The Parliament’s committee on economic and monetary affairs will later today (14 May) vote on the capital requirements legislation and is expected to call for a ban on bankers’ bonuses that are higher than regular salaries, and for more lending to small businesses.

The finance ministers will also meet Werner Hoyer, the head of the European Investment Bank, to discuss the bank’s role in directing loans to stimulate growth.

The ECB will hold a conference on debt and deficits in Frankfurt on Wednesday (16 May). Mario Draghi, the ECB’s president, and Joaquín Almunia, the European commissioner for competition, are among the speakers.

Hollande gets to work

François Hollande will take his oath as France’s president in Paris tomorrow, the first Socialist to become president since 1981. He is expected to travel to Berlin the following day for talks with Angela Merkel, Germany’s chancellor, who had openly campaigned for Hollande’s rival, Nicolas Sarkozy.

Hollande has stressed the importance of pro-growth policies in addition to deficit-cutting, which sits uneasily with Merkel’s focus on tight public budgets. But Merkel’s course is increasingly being questioned in Germany, where a regional election in North-Rhine Westphalia yesterday handed her centre-right CDU its worst result in the state since the Second World War.

Hollande will then travel to Camp David in the US for a two-day summit of the G8 group of the world’s leading economies (18-19 May) hosted by US President Barack Obama, and from there to Chicago, where NATO leaders meet on Sunday and Monday (20-21 May).