Monday, October 17, 2011

Germany lowers expectations of debt crisis breakthrough

Germany lowered expectations of a breakthrough in the euro zone's sovereign debt crisis next weekend, saying Sunday's EU summit will not produce a final solution, and kept up pressure on banks to accept bigger writedowns on Greek debt.

German Finance Minister Wolfgang Schaeuble said in a speech in Duesseldorf today that while European governments would adopt a five-point platform to address the turmoil, it was wrong to expect "a definitive solution" at the summit.

Schaeuble said the plan would have to include a reduction in Greece's debt mountain. He repeated at the weekend that private bondholders would have to accept steeper voluntary write-downs on their Greek holdings than the 21 percent agreed last July.

Merkel's spokesman said the government was working "intensively" to define how German banks would participate in a second rescue package for Greece and how to make best use of the the bloc's 440 billion euro rescue fund, the European Financial Stability Facility (EFSF).

Greece's overall debt mountain is forecast to climb to 357 billion euros this year, or 162 percent of annual economic output – a level economists agree is unsustainable.