Inspectors for the so-called troika — the International Monetary Fund, the European Central Bank, and the European Commission — are currently in Greece, looking for ways to reduce the country's debt. Greece needs more money soon to avoid defaulting on its obligations.
Greece has depended on bailouts from Europe and the IMF since May 2010. To get the loans, it has implemented a series of deep budget cuts and tax hikes, while increasing retirement ages and facilitating private sector layoffs.
However, Athens must pass further austerity measures worth €13.5 billion ($17.5 billion) over the next two years to qualify for its next rescue loan payment — without which the government will run out of cash next month. It is these cuts and tax enforcement measures that Greece and the troika are currently negotiating.
Jean-Claude Juncker, the eurogroup chief, speaking to reporters in Luxembourg after a meeting of the finance ministers of the euro countries, praised Greek officials and their willingness to do what is necessary for the country and its economy. And he said a report from representatives of the troika was largely positive.
"We were happy to learn that substantial progress has been made over the last weeks — and, mainly, days," Juncker said. "We called on the troika to finalize their negotiations and agree on a complete set of measures to close the fiscal gap for '13 and '14 as soon as possible."
Juncker and IMF chief Christine Lagarde emphasized that it was still necessary for Greece to fully implement all the measures it had agreed to in March — by Oct. 18, at the latest, Juncker said — for the next slice of aid to be released.
Earlier Monday Olli Rehn, the EU's financial and monetary affairs commissioner, said he was "less pessimistic" about the future of the euro than he was earlier this year — but warned that the region was still a long way to go before the financial and economic crisis is solved.
Meanwhile the International Monetary Fund lowered its outlook for world economic growth ahead of its annual meeting in Tokyo. The IMF forecasts that the world economy will expand by 3.3 per cent this year, down from an estimate of 3.5 per cent growth issued in July. Among the 17 nations that use the euro, low growth in the major "core economies," such as Germany and France, will be offset by outright contractions in the smaller economies, leading real gross domestic product to fall by about 0.4 per cent in 2012, the IMF said.
The IMF thinks growth in the euro area will stay flat in the first half of 2013 and tick up to about 1 per cent in the second half of the year, the IMF said.
The eurogroup of finance ministers is meeting during a period of relative calm for the eurozone. This year, leaders of the European Union and its institutions have taken steps to alleviate the concerns surrounding the region's debt crisis. The European Central bank said Sept.6 that it would be willing to buy unlimited amounts of debt in countries like Spain and Italy, which are struggling with high borrowing costs.
Also the EU has acquired significant new powers designed to help it resolve the current crisis and prevent new ones. These include the power to closely monitor national budgets and demand changes in them. Also in the works is a central banking supervisor.
Rehn said the organization's ability to react to the eurozone's financial crisis has improved significantly compared with two years ago when the crisis began.
He welcomed the official launch Monday of Europe's new €500 billion ($647.9 billion) permanent bailout fund, the European Stability Mechanism, generally referred to as the ESM.
"We have enough challenges in Europe," Rehn said as he entered a meeting of finance ministers from the eurozone. He added that while nobody was in "a party mood," he was "less pessimistic for the moment of the future prospects of the eurozone than, for instance, in the spring."
The ESM is designed to reassure investors that the EU is better equipped to contain whatever crises erupt in the eurozone.
"Today is a good day for Europe," said Juncker, who is also chairman of the ESM's board of governors, as well as prime minister of Luxembourg.
The ESM will eventually replace a temporary bailout fund, known as the EFSF, but the two will overlap for the time being while the EFSF continues to handle the bailouts of Greece, Ireland and Portugal.
The new fund will eventually have €500 billion at its disposal that it will use to buy the bonds of countries whose borrowing costs are becoming unmanageable and to lend money to them if that is not enough. It will also lend money to countries that need to prop up failing banks, including handling Spain's bank bailout. It is expected that the fund will eventually be able to lend money directly to banks, without the government having to carry those loans on its books.
Currently, such rescues have to go through governments — and that puts an added strain on countries such as Spain that are already having difficulty reducing their debts.
The EU countries have agreed that the banks can receive direct recapitalization only once the European Central Bank is put in place as their supervisor, with broad powers to oversee — and sanction — them. But there has been disagreement over how fast that should happen.
France and others are pushing for the ECB to start supervising banks by the end of the year. But German officials say it can't be done that quickly and momentum has slowed on the project.
French Finance Minister Pierre Moscovici turned up the temperature in the debate on Monday night, saying that the supervisor had to be in place quickly and that once it's up and running, banks should be able to retroactively receive direct recapitalization.
"That's the letter and that's the spirit" of the leaders' agreement, he said. "I see no reason to go back on it."
Also during Monday's meeting, the finance ministers approved the release €800 million ($1.03 billion) in bailout money for Portugal. The remainder of the next €4.3 billion tranche of aid must be formally approved by the IMF and the full 27 EU finance ministers.
The decision had been widely expected — even though Portugal has said it would miss the targets laid out in exchange for the €78 billion bailout. Already, the foreign lenders have agreed to allow the country to reduce its deficit to 5 per cent of its gross domestic product this year, rather than 4.5 per cent.