New figure for Greek bond losses at EU summit: Baroin

15th October 2011, Comments 0 comments

The eurozone will decide at a summit next weekend about how much of a loss private investors will be asked to take on Greek bonds, French Finance Minister Francois Baroin said Saturday.

Following a meeting of ministers of G20 nations, Baroin said France and Germany had made substantial progress on the issue, which is key in returning Greece's finances to a sustainable level.

"We have points of agreement that are emerging and we'll have an agreement on this question," he said.

But Baroin said it is the "heads of state and government, in particular the chancellor (Angela Merkel of Germany) and president (Nicolas Sarkozy of France) to put together the elements of the agreement on October 23."

The decision will be based on the latest report to be published on Wednesday on Greece's finance by auditors from the European Union, European Central Bank and International Monetary Fund, said German Finance Minister Wolfgang Schaeuble.

France switched its position this past week and now agrees with Germany that investors will have to take greater losses on their Greek bonds in order for Greece to stabilise its finances.

At a July summit eurozone leaders decided to ask investors to take a loss of 21 percent as part of a second rescue programme, but since then Greece's finances have worsened as its economy contracts further under the impact of austerity measures.

EU Economic Affairs Commissioner Olli Rehn declined to speculate on possible figures, saying work was continuing.

Experts estimate Greece needs to cut its debt load, equal to more than a year and a half of its economic output, by roughly half in order to put it back on a stable financial footing.

Rehn denied the eurozone was going back on the July deal with Greek debt holders, which have not finally approved the agreement.

"We are not in the process of reopening it, we're revisiting it," said Rehn.

The representative of private holders of Greek bonds said forcing them to accept greater losses would only encourage investors to sell other eurozone bonds.

"We do not see that a compelling case has been made to reopen the deal," Charles Dallara of the Institute of International Finance told the Financial Times.

Forcing investors to take losses would send shockwaves through the continent's financial and banking system.

Baroin reiterated that France wanted a voluntary deal on a writedown of Greek debt.

"We'll find a solution for Greece," Schaeuble said optimistically.

Rehn confirmed the eurozone is now trying to get its permanent bailout fund, the European Stability Mechanism, operating from mid-2012 instead of mid-2013.

He said technical discussions were underway on how to leverage up the financial firepower of the temporary bailout fund, the European Financial Stability Facility.

The United States and others have called on the eurozone to use financial instruments to multiply the firepower of the EFSF, such as by partially insuring potential losses on sovereign bonds.

© 2011 AFP

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