Greece's bonds may fall more than 60% in value

Updated: 2011-10-12 07:52

(China Daily)

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BRUSSELS / Athens - European leaders pushed back a debt-crisis summit amid opposition to Germany's drive for deeper-than-planned Greek bond write-downs that Luxembourg's Prime Minister Jean-Claude Juncker says may exceed 60 percent.

When asked on television late Monday to comment on speculation investors may lose between 50 percent and 60 percent of the value of their holdings, Juncker said, "We're talking about even more." He didn't comment further.

The Oct 18 summit meeting was postponed to Oct 23 as Europe gropes toward a master plan for dealing with Greece's oversized debt, insulating the Spanish and Italian markets and shielding banks from the fallout.

Europe needs a strategy for shoring up banks before unstitching a July accord to cut Greek bond values by an average of 21 percent, Belgian Prime Minister Yves Leterme said.

"It is a very sensitive item," Leterme said in a Bloomberg interview on Monday. "You can't at every European Council change the percentages and bring supplementary problems to banks."

Germany and France, Europe's dominant tandem, this week pledged a crisis-management breakthrough in time for a Nov 3 meeting of Group of 20 leaders, the informal steering committee for the world economy.

Opposition to bigger Greek debt write-downs is coming from the European Central Bank (ECB), which is against any backsliding from the July 21 accord on a second Greek bailout, a central bank official said on Monday. An appeal to "fully implement all aspects" of the July roadmap was inserted into last week's monthly policy statement as a warning to Germany, the official said under condition of anonymity.

Economic review

For Greece, the endgame drew nearer after an announcement that EU, International Monetary Fund and ECB inspectors concluded on Tuesday their review of Greece's progress on a bailout program, giving a qualified green light to releasing an 8-billion-euro ($10.86 billion) aid tranche in November.

Even with the latest aid tranche, it will only provide temporary relief. As the crisis worsens, the focus has shifted to a review of a second bailout plan agreed in July, with the debt-choked country expected to need even more support as its economy keeps shrinking more than expected.

Greek Finance Minister Evangelos Venizelos, who has been meeting the inspectors in recent days, tried to strike a reassuring note on Tuesday, ruling out any suggestion that Greece would be forced out of the shared currency.

"Greece is and will always be a member of the eurozone, a member of the euro," he said.

German Chancellor Angela Merkel and French President Nicolas Sarkozy put bank recapitalization at the top of the priority list in a declaration on Sunday in Berlin that triggered a flurry of consultations in European capitals.

The German and French leaders each called for a "lasting" solution to the 19-month crisis, echoing language the European Union used in March when it unwrapped what it labeled a "comprehensive" package to restore economic order.

Bloomberg News - Reuters