Greece set to default on massive debt burden, European leaders concede
Baku, July 19 (AZERTAC). European leaders bowed to the inevitable and conceded that Greece is likely to default on its massive debt burden, which would be a first among the 17 countries using the euro.
They also abruptly shifted tack in the eurozone debt crisis by raising the possibility of using the eurozone`s bailout fund to buy back Greek debt on the markets, meaning sizeable losses for Greece`s private investors and reduced debt levels for Athens.
Following 12 hours of fraught negotiations in Brussels haunted by the risks of contagion in the eurozone spreading to Italy, now being targeted by the financial markets for the first time in the 18-month crisis, the 17 governments of the eurozone pointedly failed to rule out a sovereign debt default by Greece.
A statement said that, at the meeting, the European Central Bank "confirmed its position that a credit event or selective default should be avoided".
Dealers reported a race to "safe havens" and gold priced in euros and sterling reached record levels of €1,110.48 and £979.89 an ounce in early trading before falling back, while the euro hit a record low against the Swiss franc - a safe-haven currency. Wall Street was also caught up in the anxiety, with US stocks falling 1% in early trading, while the FTSE 100 was also 1% lower.
Analysts said there was little hope of calm returning to the markets while eurozone governments remained gridlocked over how to respond despite weeks of negotiations aimed at encouraging Greece`s private creditors to take part in a new bailout.
France has proposed rolling over Greece`s privately held debt, mostly for 30 years, while Germany revived calls for a Greek debt swap, entailing "haircuts" for investors. The meeting remained split on the scale and modality of private creditor involvement in the new Greek bailout, the second in more than a year, EU officials said.
The interest Greece is paying on the bailout loans would be lowered, their maturities lengthened, and the "flexibility and scope" of the eurozone bailout fund would be "enhanced".
Sources said the proposal was to use the fund to reduce Greece`s debt burden by buying back Greek debt from bond-holders at a discount. This is likely to be contested by Germany, the central player among the creditor countries, and could run into problems in Germany`s parliament. The rules for the bailout fund would need to be rewritten, meaning the deal would need to go before MPs in Berlin, EU officials said.
Accepting that a Greek default was now impossible to avoid, EU governments are hoping it will be brief and "selective", not triggering a "credit event" on the financial markets that could wreak havoc on the credit default swap markets, also in the US, and unleash contagion.
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