Banks 'probably' face greater losses on Greek debt: France

13th October 2011, Comments 0 comments

Banks exposed to Greek debt will probably face greater losses than those already agreed to, the French finance ministry said Thursday as eurozone powers scrambled to shore up lenders.

Ahead of a weekend meeting of G20 finance ministers in Paris, France said banks would probably be forced to write off more Greek debt than the 21 percent so far proposed in a July eurozone accord on a second bailout for Athens.

In their pre-G20 briefing, French officials said EU states would set up a mechanism to allow banks in difficulty to seek assistance but that the statutes of the European Financial Stability Facility would not change.

Those European financial institutions that do need to be recapitalised are those which either failed or just scraped through stress tests held earlier this year, said a French finance ministry official who spoke on condition of anonymity.

"This is under discussion," he said, adding that figures received Wednesday on the state of the recapitalisation process were encouraging. Banks have been asked to increase their core capital reserves from five to nine percent.

"French banks have no liquidity or solvency problems," the official added.

There had been reports that France wanted the EFSF, which was set up to bail-out debt-ridden economies such as Greece, to be modified to allow it to support banks but Paris now says this will not be the case.

Paris said the role of EFSF could be reinforced, for example to guarantee parts of the debt of weaker eurozone governments, without modifying its founding rules -- an idea that eurozone paymaster Germany has opposed.

On Wednesday, European sources in Brussels suggested that the size of the EFSF could be multiplied by up to five times, bringing it to 2.5 trillion euros ($3.4 trillion).

France is also in favour of accelerating plans for a permanent eurozone bail-out facility, which could come into force in 2012 rather that in 2013 as currently planned, the finance ministry officials said.

France holds the rotating presidency of the G20 group of the world's major economies and the officials said that each member state would could up with "two or three significant measures" to kickstart growth.

These will be brought to the table at the G20 summit in Cannes in the first week of November. States with sufficient revenue to stimulate recovery will do so while France and some others "concentrate on consolidating budgets."

© 2011 AFP

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