FRANCE HAS confirmed private investors will face larger-than-expected losses on their holdings of Greek bonds under imminent Franco-German proposals to calm the euro zone debt crisis.
French finance minister François Baroin said it was “more or less certain” the haircut for private investors would be higher than the 21 per cent agreed by euro zone leaders in July, but declined to say whether writedowns of as much as 50 per cent were under consideration.
“Over the last three months, markets have moved, they have deteriorated . . . We started at 21 per cent on July 21st. It will be more, that’s more or less certain,” Mr Baroin said. That level was still being discussed but speculation that it could be higher than 50 per cent was “far-fetched”.
A second Greek rescue package, including sharper losses for bondholders, is expected to be part of a plan that will also include an expansion of Europe’s bailout fund and recapitalisation of the weakest banks. Speaking after a meeting between French president Nicolas Sarkozy and German finance minister Wolfgang Schäuble yesterday, Mr Baroin said progress had been made on the recapitalisation plan – one of the main sticking points between Paris and Berlin – and they aimed to present wide-ranging proposals to euro zone states in Brussels at the end of next week.
“We will continue our discussions in the coming days but we have already come to some agreements that will be very important.”
Germany is resisting moves to “leverage” the euro zone’s temporary rescue fund, the European Financial Stability Facility. It also says the fund should be used to recapitalise banks only as a last resort, when private capital and state aid runs out, whereas France wants the freedom to use it for this purpose much earlier.
The euro zone crisis will dominate talks between G20 finance ministers and central bank governors in Paris today, with pressure coming from the US and developing economies for Europe to stop the crisis spreading.
US treasury secretary Timothy Geithner, who has criticised euro zone leaders for failing to act decisively to contain the Greek crisis, said they were now weighing a “much more forceful package” of measures, but warned that “the hard part is still ahead”.
Proposals from developing economies to double the IMF’s lending capacity as part of a wider international response to Europe’s debt crisis, meanwhile, drew a cool response from some of the fund’s biggest shareholders.
Amid reports that some developing countries were in favour of injecting up to $350 billion (€259 billion) into the IMF to bolster its ability to intervene in Europe, Mr Geithner insisted the fund’s $380 billion worth of resources was sufficient. “They [the IMF] have very substantial resources that are uncommitted.”
Several of the fund’s other major shareholders, including Japan, Canada and Australia, also voiced opposition. However, it is believed the IMF may present a separate plan to make short-term credit lines available to fundamentally healthy countries hit by liquidity crises. This could help euro zone economies hit by the current crisis of confidence in the bloc’s sovereign debt.
Under France’s presidency, the G20 summit was originally envisioned as an opportunity to discuss better controlling of world food prices and reform of the international monetary system, but circumstances have turned it into a brainstorming session on ways to prevent a global slowdown turning into a new recession.
Arriving at the summit last night, Canadian finance minister Jim Flaherty said that, instead of focusing on the IMF and its resources, the G20 should keep up pressure on the euro zone.