Progress has been registered on a ‘comprehensive solution’ to the current eurozone crisis even though a meeting of eurozone leaders entered the early hours of this morning without a final conclusion as member states and banking authorities were still haggling over the amount of the Greek debt which should be written-off.
The lead negotiator for private holders of Greek debt, Charles Dallara said no deal was reached on the amount banks were willing to write-off.
“There has been no agreement on any Greek deal or a specific ‘haircut’. We remain open to a dialogue in search of a voluntary agreement. There is no agreement on any element of a deal,” he said.
Prime Minister Lawrence Gonzi did not given any comments to the press on the ongoing negotiations and did not emerge from the meeting from the start of the negotiations which started at 6 p.m.
Sources close to the talks said there was ‘considerable progress made’ particularly on the recapitalisation of the European banking system, but final technical negotiations were still to be finalised on other crucial aspects of the deal, including a partial default of Greece’s debt and the bolstering of the eurozone’s bailout fund known as the EFSF.
Eurozone summit
“A deal on injecting some €106 billion of fresh capital in Europe’s major banks, particularly those exposed to Greek debt has been reached.
However, there are still problems on other aspects of the deal and we think that there is still a long way to go to reach a final compromise,” an EU diplomat told The Times yesterday night.
However, Malta should not be badly dented from the deal so far, as its banks will not need to be recapitalised while the island is not expected to increase its €704 million in guarantees and loans already committed due to the crisis.
A statement released by the European Banking Authority at midnight gave details on the recapitalisation of banks stating that €106 billion of fresh capital needs to be raised, with Greek (€30 billion), Spanish (€26.2 billion), Italian (€14.8 billion) and French (€8.8 billion) banks having to raise the bulk of the funds.
According to draft conclusions seen by The Times and which were still subject to change, the main bones of contention still to be settled concern the Greek partial default – dubbed as a ‘hair cut’ – and the leveraging on the European Financial Stability Facility (EFSF).
Germany – the biggest economy in the eurozone – was insisting that the €350 billion of Greek debt should be reduced from the current 180 per cent of GDP to some 120 per cent by the end of the decade, implying that bond holders will accept a default of some 50 per cent of the debt they hold. However, according to the sources, bankers were yesterday still resisting such a high ‘hair cut’ settling instead on a 40 per cent write-off.
The second big issue grappling eurozone leaders concerned an increase in the firepower of the €440 billion eurozone rescue fund. Although it seems there was a general agreement that this fund had to be quadrupled to some €1 trillion, the method to be adopted is still not settled.
As member states – including Malta – were resisting the idea of granting more guarantees to boost further the fund, leaders were discussing two complex schemes that would allow the EFSF to act as an insurer for ‘risky’ bonds such as those issued by Italy and Spain.