Eurozone crisis: banks agree 50% cut on Greek debt, say officials
Agreement reached at EU summit, according to senior sources, with official statement expected
Eurozone leaders have finally reached a deal with private creditors over a 50% write-down or "haircut" on their holdings of Greek debt, paving the way for a more comprehensive deal to solve the sovereign debt crisis.
Senior EU sources confirmed that the 17 leaders had also agreed to increase "several-fold" the firepower of the bailout fund, the European Financial Stability Facility, but cautioned that even this would raise current capacity of 440bn to barely 1trn.
Details of the political agreement are due to be announced shortly by Herman Van Rompuy, eurozone president. Earlier the talks with the banks on Greece had run into a brick wall.
A European official said early Thursday that a voluntary deal had been reached. Another official confirmed that the banks agreed to take losses of 50% of their Greek bonds. According to Greece's debt inspectors that would take the country's debt to just above 120% 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.
At an emergency summit in Brussels, European leaders had already agreed to force banks to raise 106bn by June partially to ensure they could weather the expected losses on Greek debt.
They also neared agreement on boosting the continent's bailout fund in order to prevent larger economies finding themselves in need of a rescue like Greece.
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.
The third prong of their plan reducing Greece's crushing debts, which are on track to top 180% of economic output had b! een prov ing difficult.
The German chancellor, Angela Merkel, told lawmakers in Berlin that the goal was to bring Greece's debt down to 120% of economic output by 2020.
There were concerns it would require losses 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 turmoil on global financial markets.
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