Progress, but no results at EU leaders’ meeting
Greece remains on tenterhooks after a meeting of European Union leaders in Brussels on Sunday failed to deliver any final decisions on the recapitalization of European banks, the strengthening of a rescue fund and on the size of haircut for Greek bondholders, although there were signs that progress was made on all these issues.
Government sources said that the next few days, before EU leaders convene again on Wednesday, remain vital for negotiations.
One of the areas to be examined is what kind of haircut private investors would be willing to take. The EU leaders discussed a writedown of about 50-60 percent but Athens is adamant that the proposal has to be based around investors accepting the haircut voluntarily. Private sector holders of Greek government bonds agreed in July to a 21 percent writedown in the value of their holdings to reduce Greece?s debt burden, but this is now deemed too little.
A troika report seen by EU leaders before their meeting indicated that with just a 21 percent haircut, Greece?s debt-to-GDP ratio would remain at about 180 percent for the next four years and would still be at 130 percent by 2030.
However, Greece and its eurozone partners want to retain the voluntary element to the haircut to avoid a credit default and the triggering of CDS contracts, which would have a serious knock-on effect in the banking sector.
?We need to take corrective moves to make [the package] more balanced, to the benefit of the official sector and of Greece, and not to the benefit of the banks,? a Greek official told Reuters on condition of anonymity.
Prime Minister George Papandreou did not make any comments immediately after the meeting. But, in a joint news conference with German Chancellor Angela Merkel, French President Nicolas Sarkozy said progress was being made on plans to recapitalize Europe?s banks, strengthen the European Financial Stability Facility (EFSF) and deal with the Greek crisis.
?Work is progressing well on the banks, on the fund and the possibilities of using this fund, the hypotheses are narrowing, and a rather broad agreement is in the process of being drawn up,? Sarkozy said. ?On the question of Greece, things are progressing. We haven?t finished yet. We have until Wednesday.?
A full summit of the European Union?s 27 member states is to be held on Wednesday alongside a summit gathering leaders of the 17-nation eurozone.
