Saturday, October 22, 2011

APNewsBreak: Banks nowhere near deal on Greece

A top bank lobbyist insisted Saturday that banks and the eurozone are far from reaching a deal to cut Greece's debt, despite claims by eurozone finance ministers that they will ask banks to take steeper losses on their Greek bonds.
Although the ministers did not say how much of a cut they are aiming for, a report from Greece's international debt inspectors suggested that the value of Greece's bonds may have to be slashed as much as 60 percent to get the country solvent enough to repay its debt.
The ministers on Saturday sent their chief negotiator, Vittorio Grilli, to re-start discussions with banks and other private investors on a new deal for Greece.
However, Charles Dallara, the managing director of the Institute of International Finance, who has been leading the negotiations for the banks, said in an interview with The Associated Press that an agreement remained elusive.
"We're nowhere near a deal," he said.
Banks in July agreed to accept losses of about 21 percent on their Greek bonds. However, eurozone leaders have since reopened the deal and Greece's international debt inspectors — the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund — say Greece's economic situation has deteriorated dramatically since the summer.
In a report Friday, the inspectors said that under the July deal, Greece would need an extra euro252 billion ($347 billion) in loans from the eurozone and the IMF — on top of the euro110 billion ($152 billion) it has been relying on to pay bills since May 2010.
But Dallara said new plans to slash Greece debt would still leave the country as "a ward of Europe" for years.
He declined to say how much in losses banks would be willing to accept, saying only "we would be open to an approach that involves additional efforts from everyone."
Dallara was in Brussels, where eurozone finance ministers have been meeting for two days of talks.
The eurozone has been working to reach a voluntary agreement with banks, rather than forcing losses onto the lenders, because that could avoid triggering billions of euros on payout for bond insurance and could destabilize markets even further. However, in recent weeks some officials have no longer insisted that the deal remain voluntary.
Earlier Saturday, a European official said the EU was on track to agree on forcing banks to raise just over euro100 billion ($140 billion) to ensure they have enough cushion to weather further losses on their Greek bonds as well as market turmoil.
The official spoke on condition of anonymity because the discussions the deal was supposed to be unveiled by EU leaders at their summit Sunday.
"We have made real progress and have come to important decisions on strengthening European banks," George Osborne, Britain's chancellor of the exchequer, said as he left Saturday's meeting. Osborne did not say what the decision was.
Strengthening banks and slashing Greece's debts are critical to solving Europe's 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 euro100 billion figure is likely to disappoint some analysts, although it was above recent press reports. A report by the International Monetary Fund has called for up to euro200 billion ($280 billion) to be poured into banks.
The new rules would force systemically important banks to raise their core capital ratios to 9 percent, compared with just 5 percent to 6 percent they needed to pass EU stress tests this summer. The ratio measures the amount of capital banks hold compared to their risky assets.
Despite that significant progress, agreement on arguably the most important measure has remained elusive to eurozone leaders: boosting the firepower of the currency union's euro440 billion ($600 billion) bailout fund to keep the crisis from spreading.
Increasing the effectiveness of the fund — called the European Financial Stability Facility — is meant to help prevent larger economies like Italy and Spain from being unable to afford to borrow money from markets. That's exactly what happened to Greece, Portugal and Ireland and why those three EU countries needed bailouts.
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 meeting Saturday evening in the hopes of moving toward a deal.

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