Thaindian News

Brussels, Oct 27 (IANS/RIA Novosti) European leaders agreed to increase the eurozone’s main bailout fund to one trillion euros as part of a package of measures to stave off Europe’s spiralling debt crisis.

“The eurozone has adopted a credible and ambitious response to the debt crisis,” French President Nicolas Sarkozy said at a press conference in Brussels after the meeting Thursday.

The rescue plan also includes a deal reached with private creditors to write off 50 percent of Greece’s debt, in a bid to make the country’s debt burden sustainable, EU President Herman Van Rompuy said after an emergency summit of EU leaders in Brussels.

The eurozone and the International Monetary Fund (IMF) will give debt-burdened Greece another 100 billion euros to help stabilize its economy, Van Rompuy said early Thursday.

Rompuy said the new deal will reduce Greece’s debt to 120 percent of its GDP in 2020, while under current conditions it would have grown to 180 percent.

The rescue fund is considering all options for enlargement and is counting on further cooperation with the International Monetary Fund.

China may participate in the European Financial Stability Fund, Belgium’s Finance Minister Didier Reynders said Thursday.

“Contacts with the Chinese authorities have already been established,” he told Twizz radio in an interview.

The European Group of EU finance ministers is to prepare a plan for EFSF fund-raising in November.

The deal requires EU banks to raise more capital to protect themselves against losses resulting from any future defaults. The capitalization level will be raised to nine percent by June 2012, the European Banking Authority reported following the summit.

The amount of recapitalisation needed will total 106.447 billion euros, according to the EBA estimates, but that figure may vary depending on the restructuring of Greek debt.

Greek banks will require 30 billion euros, Spain 26.2 billion euros, Italy 14.8 billion euros and France 8.8 billion euros, Germany 5.2 billion euros. They must prepare capital raising programmes by the end of the year. British banks will not need additional funding.

The EU will also ban banks from paying bonuses to employees and dividends to shareholders until the recapitalisation process is completed, European Commission President Jose Manuel Barroso said.

The EU countries originally set up the EFSF in May 2010. At an EU summit in July, leaders of the eurozone states decided to enhance the powers of the EFSF by allowing it to buy bonds on the secondary market, recapitalise banks and raise guarantee commitments to 440 billion euros.

In July, private investors agreed to write off 21 percent of Greek debt, but further write-offs became necessary in August, when the Greek crisis escalated.

Eurozone leaders agreed a rescue package for debt-stricken Greece that month. The plan proposed providing an extra 109 billion euros of government money, plus a substantial contribution from private sector bondholders, as a supplement to a 110-billion euro bailout for the country launched by the European Union and the IMF.

Private investors were initially expected to write off 21 percent of Greek debt, but further write-offs became necessary in August, when the Greek crisis escalated.

Greek debt currently stands at 360 billion euros but keeps increasing due to short-term borrowing.

–IANS/RIA Novosti
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