* Finance chiefs to address commitments by euro zone leaders
* Few quick decisions expected with ECB bank supervision way
* Spain, Italy urge quick action as borrowing costs balloon
By Robin Emmott and John O'Donnell
BRUSSELS, July 9 Euro zone finance chiefs will
try to flesh out plans to reinforce the single currency on
Monday but their talks in Brussels may do little more than
highlight the limitations of last month's deal to help indebted
states and banks.
Decisions on banking supervision, how to use euro zone
bailout money, aid to Spain and Cyprus and whether to grant
concessions to Greece are likely to take months to finalise,
while pressure for action is growing.
Spanish and Italian borrowing costs moved back up near
unsustainable levels on Friday as hopes raised by the summit
began to fade. Leaders of both countries issued pleas at the
weekend for rapid moves to implement the agreement.
"This is where the credibility of the entire European
project is at play," Spanish Prime Minister Mariano Rajoy said.
The deal reached by leaders from the 17 nations sharing the
euro aims 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 critical elements were left vague, time frames may
already be slipping and ministers could end up meeting again
later in July to take firm decisions.
"This is very much the follow on from the summit, but it
doesn't mean all details can be set down," said one euro zone
diplomat briefed on the Brussels meeting that is due to start at
1700 CET (1500 GMT).
"The issue of ECB supervision is a complex, longer-term
issue and not one that can be decided in a few hours."
ECB President Mario Draghi will testify to the European
Parliament on Monday before ministers meet, and after cutting
rates last week could signal more dramatic measures such as
buying government bonds or flooding banks with fresh liquidity.
Germany, the bloc's biggest economy, as well as wealthy
Finland and the Netherlands, are wary of what was announced at
the summit and German Chancellor Angela Merkel is reluctant help
its partners without strict conditions.
Central to the euro zone leaders' plan is to give the ECB a
central role in supervising banks, which would then allow the
permanent rescue fund - the European Stability Mechanism (ESM)-
to recapitalise banks directly instead of via governments.
That is seen as a concession to Spain, which has requested a
bailout of up to 100 billion euros ($125 billion) for its banks,
although it is not clear when Madrid will benefit.
Leaders want to break the link between banks and sovereigns
by not lumbering governments with debts for rescuing their
lenders, making it harder for them to borrow.
But the central question as to whether individual countries
or the euro zone assumes liability for banks that are rescued by
the ESM remains open.
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 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.
The ESM is due to start operating during the European
summer, but at least for now, countries will need to provide
guarantees in return for bank aid it gives, according to one
euro zone official who is involved in preparing the Eurogroup.
That might help overcome German concerns about the ESM
taking on this risk.
"There is some degree of mystification going on here ... in
the broader public who think that under current rules the ESM
could all of a sudden end up owning Bankia with the full risk of
Bankia on the balance sheet of the ESM," he said, referring to
the Spanish lender. "This is very much not the case."
As always in the euro zone's crisis management, finance
ministers are given the difficult task of juggling national
interests, in particular among the bloc's four biggest
economies, Germany, France, Italy and Spain.
But it looks optimistic that they can do what leaders said
in their statement on June 29 when they told the Eurogroup of
finance ministers "to implement these decisions by July 9".
Much depends on the ECB's crucial role as supervisor, which
will need to be grounded in European law. It falls to the
European Commission to propose such legislation, which is not
expected until at least September.
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.
Coordinating euro zone finance ministers has been the job of
Luxembourg Prime Minister Jean-Claude Juncker since 2005, but
his terms ends on July 17 and ministers are due to discuss his
successor on Monday. However, confusion over who that is likely
to be means his term may be extended.
GREECE MUST DELIVER
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 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.
One senior euro zone official said the Eurogroup needed to
see that Athens is getting back on track before it can hand over
more aid, even if the previous Greek government said the
administration risked running out of money by the end of 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
programme seems likely in any event."
For Spain, ministers are likely to agree in principle to an
aid package although no formal green light will follow until the
end of the month, one euro zone official said.