Financial Times
July 21, 2011
French president Nicolas Sarkozy has agreed to drop a plan to help fund a €115bn Greek bail-out with a €50bn bank tax, a significant victory for Angela Merkel, the German chancellor, who extracted the concession at a late night meeting in Berlin ahead of an emergency summit of eurozone leaders.
The tax plan, which would have raised €10bn a year for five years through a 0.0025 per cent levy on all assets held by eurozone banks, was strongly resisted by Berlin, which saw the plan as taking too long to implement and raise funds, which would have been used for a massive Greek bond repurchase programme.
The deal paves the way for a German-backed initiative for more direct measures to get private holders of Greek bonds to help pay for the bail-out. According to a version of the plan circulated by the European Commission on Wednesday evening, all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. Other plans, however, including a French-backed bond roll-over plan, are believed to still be on the table.
The Commission plan, which would include credit sweeteners to encourage broad participation, is expected to lead to a temporary default on Greek bonds, something fiercely resisted by the European Central Bank. Jean-Claude Trichet, the ECB president, joined Mr Sarkozy and Ms Merkel at the pre-summit session in Berlin.
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