Banks nowhere near deal on GreeceA top bank lobbyist insisted today 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.
By: Gabriele Steinhauser, AP Business Writers
BRUSSELS — A top bank lobbyist insisted today 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 today sent their chief negotiator, Vittorio Grilli, to 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, which has been leading the negotiations, 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 21 percent losses 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 — have said that Greece's economic situation has deteriorated dramatically since the summer.
They said that under the July deal, Greece would need an extra €252 billion ($347 billion) in loans from the eurozone and the IMF — on top of the €110 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.
Earlier today, an EU official said EU finance ministers neared agreement on forcing banks to raise just over €100 billion ($140 billion) to ensure they have enough cushion to weather further losses on their Greek bonds as well as market turmoil.
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 crisis in the eurozone is doing real damage to many of the European economies, including Britain," George Osborne, Britain's chancellor of the exchequer, said as he headed into today's meeting. "We have had enough of short-term measures, sticking plasters that get us through the next few weeks."
The European official said EU leaders meeting Sunday should sign off on forcing the continent's biggest banks to raise just over €100 billion in capital. The official spoke on condition of anonymity because the discussions between ministers were still ongoing.
The figure is likely to disappoint some analysts. A report by the International Monetary Fund has called for up to €200 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.
Copyright 2011 The Associated Press.