Euro zone officials are cautioning against expecting any quick action from the currency bloc's finance ministers when they meet on Monday to sort out the tangle of loose ends and disagreements left by last month's EU debt-crisis summit.
Banking supervision, the use of European Union bailout money, aid to Spain and Cyprus and how to deal with Greece - together it could take months to finalise, despite pressure from financial markets for clarity on the details.
Leaders from the 17 nations sharing the euro reached a deal in the early hours of last Friday to give the European Central Bank greater oversight of the bloc's banks and to use the euro zone's rescue funds to reduce countries' borrowing costs.
But after going beyond what many diplomats, finance officials and investors had expected, critical elements were left vague. Time-frames may already be slipping and opposition is building in euro zone hardliners the Netherlands and Finland.
“You have a Finnish problem. You have a Dutch problem. You have a German problem too,” said one euro zone diplomat, pointing to the reservations of those countries about what was announced at the summit and German Chancellor Angela Merkel's reluctance to help its partners without strict conditions.
“I don't see a package done by Monday. They will work until the end of July or the beginning of August on these things,” said the diplomat, who is involved in preparations for the Eurogroup meeting of euro zone finance ministers.
The meeting's crowded agenda may hamper progress. Discussing an aid package for Spain's banks, dealing with a request from Cyprus for emergency help, and whether to ease the conditions of Greece's second bailout are also on the table.
Euro zone leaders have committed to ECB-led supervision for banks, which would then allow the permanent rescue fund - the European Stability Mechanism - to recapitalise banks directly, rather than having to lend to governments.
That is seen as a major concession to Spain, which has requested a bailout of up to 100 billion euros ($125 billion) for its banks, but does not want to see that money added to its national debt and possibly push it towards a sovereign rescue.
Leaders agreed to remove the ESM's preferred creditor status when it lends to Spain, to calm investors who were worried they would not be repaid the money they had already lent.
They also decided that the ESM and the euro zone's temporary bailout fund, the EFSF, can buy euro zone bonds at auction and in the open market to lower borrowing costs, with some conditions attached but without a full programme.
POLITICAL PROBLEMS
In their summit statement on June 29, leaders told the Eurogroup of finance minister “to implement these decisions by July 9”. That now looks optimistic and delays could test market patience.
Ministers will look at the mechanics of how it will work in practice on Monday, but much depends on the ECB's crucial role as supervisor, which will need to be grounded in European law.
It now falls to the European Commission to propose such legislation, which is not expected until at least September.
“It will take at least until the first half of next year to be implemented,” said Douglas Renwick, a director responsible for government credit ratings at Fitch Ratings.
“This could run into political problems. The major banks are often national champions and governments have been quite protective of them in the past. The idea of ceding oversight to a European level is a politically painful step to take.”
Despite the obstacles to the broad package outlined by leaders, the range of measures agreed allow some short-term action, and vocal opposition to euro zone bond buying in the Netherlands and Finland is unlikely to ruin those plans.
Finland has said it opposes bond-buying in secondary markets, because it considers such purchases to be ineffective.
In emergency cases, the ESM's treaty allows for decisions to be taken with an 85 percent majority, and the Netherlands and Finland only account for 8 percent combined.
“The ESM discussion is being complicated by politicians talking to their electorates, but I think there is a consensus to move ahead with what was decided at the summit,” said another euro zone official, briefed ahead of the Eurogroup.
TOUGH TROIKA
If only things were so straight forward for southern Europe.
Greece's new Finance Minister Yannis Stournaras said on Thursday he had been warned to expect a tough time at the Eurogroup, having acknowledged Athens was off course on its pledges linked to a 130-billion-euro rescue.
Ministers will discuss the findings of the “troika” of the European Union, the European Central Bank and International Monetary Fund from their first mission to Greece since the June 17 election. Another mission is due to return later in July.
Greece's Prime Minister Antonis Samaras wants to ease the terms of the bailout, but that would mean more money for Athens.
“Even if the second programme as it stands were fully implemented, it is not clear that market access could resume (in 2015),” said David Mackie, an economist at JP Morgan. “A third program seems likely in any event.”
For Spain, ministers are unlikely to sign off formally on an aid package for its banks as they are still awaiting an expert report on the situation, despite expectations of a July 9 deal.
“If the euro zone is to survive it has to be more integrated,” said Fitch's Renwick. “Further difficult political concessions will have to be made over the coming years.” -Reuters