BRUSSELS/ROME: Euro zone leaders intend to multiply the capacity of their rescue fund around fourfold to one trillion euros but details of how they plan to draw a line under Europe's worsening debt crisis will not be nailed until next month, sources said.
A draft statement from an emergency summit on Wednesday, obtained by Reuters, said two options were being considered to leverage the 440 billion euro ($600 billion) fund designed to shore up heavily indebted states and thwart market attacks.
If the draft is adopted with little change, the second ,euro zone summit in four days will have sketched broad intentions but failed to produce a detailed masterplan to scale up the fund, recapitalise banks and reduce Greek debt to a sustainable level, despite Franco-German assurances a "comprehensive solution" would be found.
One proposal involves creating a special purpose investment vehicle (SPIV) to tap foreign sovereign and private investors, such as Chinese and Middle Eastern wealth funds, to buy bonds of troubled euro zone countries.
The other method for scaling up the European Financial Stability Facility involves using it to offer partial guarantees to purchasers of new euro zone debt. The two options could be used simultaneously and the International Monetary Fund could also help.
Euro zone finance ministers will be asked to finalise the terms and conditions in November, the statement said. An EU source said the EFSF was expected to be leveraged by something like a factor of four giving it scope of around 1 trillion euros.
"It's moving in the right direction but it is going to disappoint the market, particularly given the emphasis policy makers put on this meeting," said Jessica Hoversen, foreign exchange analyst at MF Global in New York.
Aside from the EFSF, specifics of a Greek debt write-down may also be left for later negotiation among finance ministers.
While there is consensus on the need for European banks to raise around 110 billion euros ($150 billion) in extra capital to withstand a potential Greek debt default and wider financial contagion, governments and banks are still haggling over the scale of write-offs private bondholders will have to take on their Greek debt holdings, sources said.
EU leaders agreed the outlines of a package on bank recapitalisation, including raising the core capital ratios of European banks to 9 percent by the end of June 2012, but they did not provide a headline figure, which will depend in part on negotiations over Greece and its second package.
"There will be give and take with the banks until the last minute," a Greek government source involved in the Brussels negotiations said. "As far as now, the talks are going on."
European leaders' pattern of responding too little, too late has spawned a wider economic and political crisis that threatens to undermine the euro single currency and the European Union project.
economictimes
A draft statement from an emergency summit on Wednesday, obtained by Reuters, said two options were being considered to leverage the 440 billion euro ($600 billion) fund designed to shore up heavily indebted states and thwart market attacks.
If the draft is adopted with little change, the second ,euro zone summit in four days will have sketched broad intentions but failed to produce a detailed masterplan to scale up the fund, recapitalise banks and reduce Greek debt to a sustainable level, despite Franco-German assurances a "comprehensive solution" would be found.
One proposal involves creating a special purpose investment vehicle (SPIV) to tap foreign sovereign and private investors, such as Chinese and Middle Eastern wealth funds, to buy bonds of troubled euro zone countries.
The other method for scaling up the European Financial Stability Facility involves using it to offer partial guarantees to purchasers of new euro zone debt. The two options could be used simultaneously and the International Monetary Fund could also help.
Euro zone finance ministers will be asked to finalise the terms and conditions in November, the statement said. An EU source said the EFSF was expected to be leveraged by something like a factor of four giving it scope of around 1 trillion euros.
"It's moving in the right direction but it is going to disappoint the market, particularly given the emphasis policy makers put on this meeting," said Jessica Hoversen, foreign exchange analyst at MF Global in New York.
Aside from the EFSF, specifics of a Greek debt write-down may also be left for later negotiation among finance ministers.
While there is consensus on the need for European banks to raise around 110 billion euros ($150 billion) in extra capital to withstand a potential Greek debt default and wider financial contagion, governments and banks are still haggling over the scale of write-offs private bondholders will have to take on their Greek debt holdings, sources said.
EU leaders agreed the outlines of a package on bank recapitalisation, including raising the core capital ratios of European banks to 9 percent by the end of June 2012, but they did not provide a headline figure, which will depend in part on negotiations over Greece and its second package.
"There will be give and take with the banks until the last minute," a Greek government source involved in the Brussels negotiations said. "As far as now, the talks are going on."
European leaders' pattern of responding too little, too late has spawned a wider economic and political crisis that threatens to undermine the euro single currency and the European Union project.
economictimes
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