Banking losses
October 22, 2011
Eurozone finance chiefs agreed on Saturday that banks must be prepared to accept substantially bigger losses on their Greek debt bonds as the eurozone crisis summit continued in Brussels.
Arriving for the second day of talks designed to resolve Europe's debt crisis, Luxembourg premier and head of the 17-nation eurogroup, Jean-Claude Juncker, said banks must boost their contribution to resolving the lingering crisis.
"We agreed yesterday that we need a substantial increase of the share which has to be taken over by the banks," Juncker said.
A new report which formed the basis for discussions at the finance ministers' meeting on Friday suggested that writedowns of as much as 60 percent may be necessary. The new figure far exceeds an earlier estimate that banks would have to take a 21 percent loss which was agreed upon in July.
The report, compiled by international debt inspectors, warned that in order to keep rescue loans from the eurozone to the original 109 billion euro ($150 billion) limit, Greece's debt would have to be cut by up to 60 percent.
Debt 'haircut'
Commenting on progress in Brussels on Saturday, Sweden's finance minister Anders Borg said it was "pretty obvious that we need a substantial haircut on Greek debt."
"Banks cannot treat taxpayers as giving them freebies instead of taking responsibility," he added.
Saturday's critical talks focused on ways to make the eurozone banking system more resilient to the threat of Greek default and any wider contagion across Europe. Earlier in the day, Britain's finance minister George Osborne warned that without long-term solutions the debt crisis could engulf larger economies in Europe.
"The crisis in the eurozone is doing real damage to many of the European economies, including Britain," Osborne said.
"We have had enough of short-term measures, sticking plasters that get us through the next few weeks," he added.
With concerns over whether banks could withstand the heightened losses and the likely resulting market turmoil, finance chiefs were also expected to force banks to raise billions in emergency funds.
European leaders had promised to have reached a solution by the third and final day of the summit on Sunday, but an additional meeting of EU leaders has now been scheduled on Wednesday.
"We have made enormous progress but not enough to take final decisions on [Sunday]," said Steffen Seibert, spokesman for German Chancellor Angela Merkel on Friday.
Author: Charlotte Chelsom-Pill (AP, AFP, Reuters)
Editor: Andreas Illmer