The Elusive Brussel’s Talk Show on Greece Debt

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BRUSSELS: Prospects for a comprehensive deal to resolve the euro zone debt crisis at a summit on Wednesday looked dim, with disagreements remaining on critical aspects including how to give the region’s bailout fund greater firepower.

EU officials and European diplomats lowered expectations of a breakthrough when the 17 euro zone leaders meet from 1730 GMT, despite Franco-German assurances that a “comprehensive solution” to two years of debt turmoil would be found by the end of the month.

The leaders may agree only on broad outlines and leave crucial details, including the numbers on a Greek debt write-down and on funds available for financial fire-fighting, for later negotiation among finance ministers.

While there was wide consensus on the need for around 110 billion euros ($150 billion) to be injected into the European banking system to withstand a potential Greek debt default and wider financial contagion, there was little clarity on either of the other two critical parts of the plan.

Governments and banks were still arguing hours before the summit over the scale of the writedown private bondholders will have to take on their Greek debt holdings, sources familiar with the negotiations said.

And many uncertainties remain around complex plans to scale up the region’s 440 billion euro ($600 billion) bailout fund, known as the European Financial Stability Facility, without allowing it to draw on the European Central Bank.

Investors stayed cautious ahead of the summit outcome, with the euro holding steady against the dollar and European shares little changed.

One proposal set to be adopted involves creating a special purpose investment vehicle (SPIV) to tap foreign sovereign and private investors, such as Chinese and Middle Eastern wealth funds, to buy bonds of troubled euro zone countries.

50 PERCENT “HAIRCUT”?

Greek Finance Minister Evangelos Venizelos was reported on Wednesday to have told Greek banks the most likely outcome of the negotiations was a 50 percent “haircut” for private bondholders, who would receive cash and new bonds in return for the debt.

Brussel's Grand Place at night

Brussel's Grand Place at night

Citing sources in Brussels, where he has been meeting bankers, the daily Kathimerini said under this scenario banks would receive 15 euros in cash and 35 euros in 30-year bonds with a 6 percent coupon for every 100 euros of debt they own.

The exact proportion of bonds and cash could still change, it said.

Banking sources and EU officials told Reuters the banks had so far offered a 40 percent reduction in the net present value of their holdings, while governments had initially sought a 60 percent “voluntary” write-down on the notional value.

Courtsy: Economic Times

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