Europe's banks to face losses on Greek debt
As Greek Prime Minister George Papandreou held talks with EU leaders in Brussels, euro-zone officials raced to finalise a response ahead of an October 23 summit to resolve a crisis threatening to spark a new global recession.
The head of one major lender, Germany's Deutsche Bank, voiced reluctance to recapitalise, saying the debate was "counterproductive" and that it was up to governments to restore confidence in public finances.
In Paris, the French finance ministry said banks exposed to Greek debt will probably be forced to write off more than the 21 percent so far proposed in a July euro-zone accord on a second bailout for Athens.
"The discussions are on a cut of 50 percent," a source from a European government told AFP, adding that this was a maximum level and the figure could be lower.
On another front, Slovakia was set to hold a new vote on expanding the euro-zone's rescue fund later Thursday or Friday after parliament rejected it earlier this week.
Slovakia is the last country in the 17-nation euro-zone that needs to approve the European Financial Stability Facility (EFSF), the single currency area's main weapon against the crisis.
With a major EU summit set for October 23 and a G20 meeting next month, EU officials are working on a raft of ideas to soothe international concerns.
"We believe that we have to be stronger in our response. It has to be a decisive, comprehensive response," European Commission president Jose Manuel Barroso said as he met visiting Irish Prime Minister Enda Kenny.
"We have very similar views on what needs to be done to support Greece inside Europe, to give maximum possible flexibility to the EFSF, to beef up European Union banks' capital positions," Barroso said.
With the unrelenting crisis now threatening Europe's banking system, Barroso is calling for the urgent recapitalisation of banks so they can weather the sovereign debt storm.
However, not all agree that that is the real answer.
"It's not the capital resources of banks that are the problem but the fact that sovereign debt has lost its status as a risk-free asset," said Deutsche Bank chief Josef Ackermann.
"The key to solving the problem therefore lies with governments, to be precise, in the restoration of confidence in the solidity of public finances," Ackermann said.
"Indeed, the current recapitalisation debate is actually counterproductive, because it sends the signal that a debt 'haircut' is more likely," the head of Germany's biggest bank argued.
Barroso wants banks to try first to tap the private market to beef up their capital, with support from governments if necessary. If such support is unavailable, the revamped EFSF, once it is ratified, could provide loans.
Barroso did not give a figure but a European source said the commission wants banks to raise their core capital to 9.0 percent within three to six months, above the 7.0 percent level lenders are working on under international reforms.
Another possible European Commission proposal, an EU source said, would see the EFSF's firepower multiplied by up to fivefold, or to 2.5 trillion euros ($3.5 trillion), but without governments providing new guarantees.
Papandreou did not speak as he arrived for talks with EU president Herman Van Rompuy and Barroso. He was to meet later with Juncker, who chairs the group of eurozone finance ministers.
Copyright AFP (Agence France-Presse), 2011