Banks should accept a bigger loss on Greek debt, say ministers

 

Eurozone finance ministers said that they have agreed that banks should accept substantially bigger losses on their Greek bonds, with a new report suggesting that writedowns of up to 60 percent may be necessary.

The report from Greece's international debt inspectors, which formed the basis for discussions at the finance ministers' meeting on Friday, says that in order to keep rescue loans from the eurozone to the €109 billion foreseen under a second bailout deal tentatively reached in July, Greece's debt would have to be cut by 60 percent.



Even that would leave the country's debts still at 110 percent of economic output in 2020.



"Yesterday we agreed that we need a substantial increase in the contribution from the banks," said Jean-Claude Juncker, Luxembourg's prime minister who also chairs the meetings of eurozone finance ministers. That means the July deal, under which banks would have taken writedowns on their Greek bondholdings of about 21 percent, is definitively off the table.



Austria's Finance Minister Maria Fekter told journalists that the eurozone's chief negotiator Vittorio Grilli had been asked to restart negotiations with banks.



Greek Finance Minister Evangelos Venizelos confirmed as he arrived for the meeting that leaders were looking for banks to write down more than the July agreement envisaged. "But in any case, Greece is not a central problem for the eurozone," he said. "Now the point is to take a more general and more constructive decision for eurozone as a whole."



The report did not make policy recommendations, and in fact the European Central Bank opposes cutting Greece's debts further. But finance ministers are clearly paying close attention to the document.



Another scenario showed that if Greece's debts are cut by 50 percent, the country would need €114 billion, on top of the July package.



The agreement to push for much bigger losses is a key step in helping Athens eventually dig out from underneath its debt burden.



But asking banks to more significantly write down their Greek debt will raise concerns about their ability to withstand the losses as well as the ensuing turmoil on financial market.



As a result, the finance chiefs from the 27 EU countries, meeting Saturday in Brussels, are also expected to force banks across the continent to raise billions in capital for their rainy-day funds.



Both measures are critical to solving Europe's debt crisis, which is now threatening to engulf larger economies like Italy and Spain and is blamed for dampening growth across Europe and even the world.



"The crisis in the eurozone is doing real damage to many of the European economies, including Britain," George Osborne, Britain's chancellor of the exchequer, said as he headed into Saturday's meeting. "We have had enough of short-term measures, sticking plasters that get us through the next few weeks."



European leaders had promised a solution would come from a summit on Sunday — following the two days of finance ministers' meetings — but they have now scheduled another get-together of EU leaders for Wednesday. Still, this weekend, they appeared to be making progress.



Pressure on finance ministers was high, after the report from Greece's debt inspectors — the European Commission, the European Central Bank and the International Monetary Fund — showed that the country's economic situation had deteriorated dramatically since the summer.



If the July deal with banks were to go ahead, the report said, Greece's debt would peak at a massive 186 percent of economic output in 2013 and only decline to 152 percent by the end of 2020.



That would prevent Greece from raising money on the markets until 2021 and require the eurozone and the IMF to put in an extra €252 billion in new loans through 2020, according to the report, which was given to the ministers on Friday and seen by The Associated Press.



Greece has already been relying on €110 billion in international emergency loans since May last year.



While the ministers were making progress on reducing Greece's debts, an arguably bigger problem remained intractable: boosting the firepower of the eurozone's €440 billion bailout fund to keep the crisis from spreading.



Increasing the effectiveness of the European Financial Stability Facility is meant to help prevent larger countries like Italy and Spain from being unable to afford to borrow money from markets — which is exactly what happened to Greece, Portugal and Ireland and why those countries needed bailouts.



But Germany and France still disagree over how to do that and failed to make much progress on that front Friday night. German Chancellor Angela Merkel and French President Nicolas Sarkozy are set to meet Saturday evening in the hopes of moving toward a deal.



In a sign that the pressure is rising on leaders to come up with an overarching solution, the finance ministers from the 17 countries that use the euro also said they'll regroup Saturday afternoon.

AP

PROMOTED VIDEO
News
Ashton Kutcher speaking at Human Rights Watch's Voices For Justice dinner in November 2013
people'What is so wrong about digging up dirt on shady journalist?'
Life and Style
Jane Merrick rides on a Micro Scooter through St James's Park, on November 18, 2014 in London, United Kingdom.
life
Arts and Entertainment
Babysitter Katie and Paul have terse words in the park
tvReview: The strength of the writing keeps viewers glued to their seats
News
i100
Arts and Entertainment
American singer, acclaimed actor of stage and screen, political activist and civil rights campaigner Paul Robeson (1898 - 1976), rehearses in relaxed mood at the piano.
filmSinger, actor, activist, athlete: Paul Robeson was driven to a miserable death. His story is to be told in film
Sport
Qatar has very little football history

It is a crazy place to play in summer, writes Paul Scholes

Life and Style
Make-up artists prepare contestants for last year’s Miss World, held in Budapest
fashion
News
ebooksNow available in paperback
News
Actor Dave Prowse in his role as the Green Cross Code Man in 1982
peopleStar Wars actor to reprise his other role - as the Green Cross Man
Life and Style
life
Arts and Entertainment
Brit Marling as PR woman Liz Garvey
tv

It was all about Liz’s cocaine-fuelled brainwave, 'The Metwork'

Voices
The Emir of Qatar Sheikh Hamad and Russia’s deputy prime minister Igor Shuvalov flank Fifa president Sepp Blatter
voices
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Carlton Senior Appointments: Director, Private Bank - San Francisco, CA

$175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...

Carlton Senior Appointments: San Diego, CA – Tier 1 House - Senior MD FA

Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...

Day In a Page

US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

Immigration: Obama's final frontier

The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

Bill Cosby rape allegations explained

Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

You know that headache you’ve got?

Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

Scoot commute

Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
Paul Robeson: The story of how an American icon was driven to death to be told in film

The Paul Robeson story

How an American icon was driven to death to be told in film
10 best satellite navigation systems

Never get lost again: 10 best satellite navigation systems

Keep your vehicle going in the right direction with a clever device
Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

Paul Scholes column

England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

Michael Dawson: I’ll thank Spurs after we win

Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

Frank Warren column

Dr Wu has big plans for the professionals yet he should stick to the amateur game
Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

Terror unites Jerusalem after synagogue attack

Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

'How do you carry on? You have to...'

The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
Isis extends its deadly reach with suicide bombing in Kurdish capital

Isis extends its deadly reach with suicide bombing in Kurdish capital

Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
Underwater photography competition winners 2014 - in pictures

'Mysterious and inviting' shot of diver wins photography competition

Stunning image of cenote in Mexico takes top prize
Sir John Major: Negative West End portrayals of politicians put people off voting

Sir John Major hits out at theatres

Negative West End portrayals of politicians put people off voting
Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

Kicking Barbie's butt

How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines