Private investors have agreed to accept losses of 50 per cent on
their Greek bonds, an official says, removing the last apparent
roadblock to a broad European plan to solve the continent’s debt crisis.
At the emergency summit in Brussels, European leaders had
already agreed to force banks to raise €106 billion ($A142.33 billion)
by June - partially to ensure they could weather the expected losses
on Greek debt.
Details of the deal are beginning to emerge, with French
president Nicolas Sarkozy telling a press conference that there will be
no Greek default.
Advertisement: Story continues below
He said that Greek losses for investors would be about
€100 billion and that Greek debt will fall to 120 per cent of GDP - but
not until 2020.
According to Mr Sarkozy, the bailout fund will set up "powerful firewalls" to prevent contagion.
EU leaders also neared agreement on boosting the
firepower of the continent’s bailout fund in order to prevent larger
economies from finding themselves in need of a rescue like Greece’s.
The leaders are under immense pressure to finalise their plan after multiple delays and half-baked solutions.
Market confidence was waning and fears were growing that
the two-year-old crisis could push Europe and much of the developed
world back into recession.But the third prong of their plan - finding a
way to reduce Greece’s crushing debts, which are on track to top 180 per
cent of economic output - had been proving difficult.
German Chancellor Angela Merkel told MPs in Berlin that
the goal was to bring Greece's debt down to 120 per cent of economic
output by 2020.
There were concerns that that would require losses that
the banks weren’t willing to take on voluntarily. Having a voluntary
deal is important because imposing losses on banks can trigger massive
bond insurance payments that risk creating huge turmoil on global
financial markets.
A European official said today that a voluntary deal had
been reached.Another official confirmed that the banks agreed to take
losses of 50 per cent of their Greek bonds.
According to Greece’s debt inspectors that would take the country’s debt to just above 120 per cent by 2020.
The officials spoke on condition of anonymity pending an
official statement.A spokesman for the organisation that has negotiated
on behalf of the banks said he would release a statement soon, without
confirming the deal.
Australian share trading has been halted as the ASX deals with a trading glitch, leaving investors unable to react to earnings news and developments in Europe.
"It's risk on," said Bell Direct equities analyst Julia
Lee. "I would expect the market to have traded up by 0.4 per cent by now
if it could."
Australian markets have tracked the European-US dollar
trade since the beginning of the month, she said, as attention turned
toward Europe's bail-out troubles. The euro has gained 1 per cent
against the greenback today on the news of the European agreement, or
1.4 US cents. Ms Lee said the Australian shares would probably be moving
in line with that currency pair if they could trade.
"Risk currencies are gaining and risk assets are gaining," she said.
Also Asian stocks and US futures are moving higher, which would most likely lift local stocks.
At a press conference in Canberra a short time ago,
Federal Treasurer Wayne Swan said the world must see a comprehensive
plan from European leaders to deal with sovereign debt problems.
"We cannot afford any more stumbles or missteps from the
Europeans. It's critical that we see a comprehensive plan announced by
European leaders as soon as possible," Mr Swan said.
"It needs to be a durable and credible plan and it needs to be for the long term."
The world had paid a very high price for Europe’s failure to act over the past 18 months, Mr Swan said.
The federal government fears a recession in Europe could spread to the rest of the global economy.
