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Eurozone leaders head into critical summit on debt crisis

Text by News Wires

Latest update : 2011-07-21

Eurozone leaders entered a critical summit on Thursday in the hope of finding a solution to reducing Greece's debt mountain amid nervous markets. French and German leaders agreed the night before to a common plan for the meeting.

AP - Eurozone leaders are moving closer to signing off on a second bailout for Greece but markets are fretting that any deal that emerges later Thursday may imply a Greek debt default after a plan to slap a tax on banks appears to have been shelved.

Reaching a deal – it had looked unlikely earlier this week – became easier after Germany and France agreed on a common position on how to get banks and other investors to share the burden of a second rescue during last-ditch talks in Berlin Wednesday.
 
The offices of German Chancellor Angela Merkel and French President Nicolas Sarkozy did not release any details on their common plan, but the prime minister of Luxembourg said it was unlikely to include a tax on banks to help pay for the second rescue package.
 
“I have the impression that there is no agreement on a banking tax,” Jean-Claude Juncker, who as the chairman of the Eurogroup is one of the key officials of the currency union, said as he arrived in Brussels.
 
Juncker’s comments sparked a bout of euro selling in the markets, as investors now think that any private sector involvement may well mean that the credit rating agencies will consider that Greece will be in default of its debts. By late morning, the euro was 0.8 percent lower at $1.4150, having earlier traded above $1.42.
 
Juncker conceded that the final deal could well see the agencies slapping a “selective default” rating on the country.
 
That could trigger fresh financial turmoil, especially if the European Central Bank insists on cutting Greek banks from emergency support, as it threatened to do if the country is considered to be in default.
 
Leaders have been struggling to find an agreement that makes sure that banks and other private investors help pay for a bailout, without triggering panic on financial markets that the crisis could spread to larger economies like Spain or Italy.
 
Juncker also said that any deal should include more “flexibility” for the currency union’s bailout fund. Such flexibility is usually shorthand for lower interest and longer maturity for bailout loans as well as wider powers for the fund, such as the ability to buy up distressed bonds.
 

Date created : 2011-07-21

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