EU bids to slash Greek debt by third

Financial Times
October 26, 2011

Eurozone leaders will attempt to reduce Greece’s outstanding debt to 120 per cent of gross domestic product by the end of the decade, but were struggling on Wednesday night to pin down details of the private sector’s contribution, needed for a comprehensive deal.

The sharp reduction in Greek debt levels, announced by Angela Merkel, German chancellor, would be likely to force bondholders to accept their debt payments be halved, according to an analysis by international lenders. They believe Athens is on track for its debt to peak at 186 per cent of GDP in 2013, compared to 83 per cent for Germany.

But officials were making little progress with bondholders in talks that stretched into the evening, and it appeared negotiations would have to continue beyond the much-anticipated summit of eurozone leaders. They gathered in Brussels in an effort to finalise a three-pronged plan to tackle the sovereign debt crisis.

The lack of an agreement with bondholders on the size of their Greek writedown was likely to make another major element of the European plan almost impossible to finalise: the size of new firepower for the eurozone’s €440bn bail-out fund. That, in turn, complicates the final leg of the deal, recapitalising European banks, which need the beefed-up fund as a backstop.

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