EU leaders reach crisis deal October 27, 2011 - 12:58PM
Private investors have agreed to accept losses of 50 per cent on their Greek bonds, an official says, removing the last apparent roadblock to a broad European plan to solve the continent’s debt crisis.
At an emergency summit in Brussels, European leaders had already agreed to force banks to raise 106 billion euros ($A142.33 billion) by June - partially to ensure they could weather the expected losses on Greek debt.
They also neared agreement on boosting the firepower of the continent’s bailout fund in order to prevent larger economies from finding themselves in need of a rescue like Greece’s. Advertisement: Story continues below
The leaders are under immense pressure to finalise their plan after multiple delays and half-baked solutions.
Market confidence was waning and fears were growing that the two-year-old crisis could push Europe and much of the developed world back into recession.But the third prong of their plan - finding a way to reduce Greece’s crushing debts, which are on track to top 180 per cent of economic output - had been proving difficult.
German Chancellor Angela Merkel told MPs in Berlin that the goal was to bring Greece's debt down to 120 per cent of economic output by 2020.
There were concerns that that would require losses that the banks weren’t willing to take on voluntarily. Having a voluntary deal is important because imposing losses on banks can trigger massive bond insurance payments that risk creating huge turmoil on global financial markets.
A European official said early on Thursday that a voluntary deal had been reached.Another official confirmed that the banks agreed to take losses of 50 per cent of their Greek bonds.
According to Greece’s debt inspectors that would take the country’s debt to just above 120 per cent by 2020.
The officials spoke on condition of anonymity pending an official statement.A spokesman for the organisation that has negotiated on behalf of the banks said he would release a statement soon, without confirming the deal.
Australian share trading has been halted as the ASX deals with a trading glitch, leaving investors unable to react to earnings news and developments in Europe.
At a press conference in Canberra a short time ago, Federal Treasurer Wayne Swan said the world must see a comprehensive plan from European leaders to deal with sovereign debt problems.
"We cannot afford any more stumbles or missteps from the Europeans. It's critical that we see a comprehensive plan announced by European leaders as soon as possible," Mr Swan said.
