BRUSSELS, Belgium — Private investors agreed Thursday morning to accept losses of 50 per cent on their Greek bonds, an official said, removing the last apparent roadblock to a broad European plan to solve the continent’s debt crisis.
At an emergency summit in Brussels, European leaders had already agreed to force banks to raise C106 billion ($148 billion) by June — partially to ensure they could weather the expected losses on Greek debt.
They 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 finalize their plan after multiple delays and half-baked solutions. Market confidence was waning and fears were growing that the 2-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 lawmakers 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 early Thursday 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.