BRUSSELS, Oct. 25 (UPI) -- A banking-industry negotiator warned of dire consequences if European banks are forced to accept losses of as much as 60 percent on Greek debt.
Forcing the 60 percent cut in the face value of Greek bonds -- a hard-line stance European negotiators propose that far exceeds losses agreed to three months ago in a deal between private investors and eurozone authorities -- would "likely have severe contagion effects," Charles Dallara, managing director of the Institute of International Finance, a global banking group, said in a statement.
The contagion, or disease-like spreading of economic problems from sick economies to relatively healthy economies, "would cost the European and the world economy dearly in terms of employment and growth," Dallara said.
It would "isolate the Greek economy from international capital markets for many years and would impose a harsh burden on the Greek people as well as European taxpayers," he said.
Related
The 60 percent cut is a significant shift both in magnitude and kind, the Financial Times reported. The July deal, which called for a 21 percent "haircut," didn't force cuts in the Greek debt's face value -- it simply delayed repayment for 30 years.
The banks are demanding assurances Greece will eventually repay its debts without international bailout help. The International Monetary Fund said payment without help would be nearly impossible because Greece's economy deteriorated so much it might need international assistance for nine years.
Italy, which many economists fear could be next to collapse in debt if it fails to make major budget cuts swiftly, scheduled an emergency Cabinet meeting Tuesday after holding an emergency meeting late Monday to discuss ways of reducing the country's $2.8 trillion debt, which amounts to about 120 percent of its gross domestic product.
One measure discussed was overhauling Italy's pension system and increasing the worker retirement age, The Wall Street Journal reported.
The current pension system lets many Italians retire at age 58.
Before the meeting, Prime Minister Silvio Berlusconi, embattled by sex scandals, chided French President Nicolas Sarkozy and German Chancellor Angela Merkel for bluntly telling him Sunday he must introduce tough new measures to cut Italy's budget and spur economic growth.
"No one in the EU can nominate themselves commissioner and speak in the name of elected governments," he said. "No one can give lessons to EU partners."
And "no one need fear Europe's third-largest economy," he said, adding Italy would balance its budget by 2013.
France and Germany should look at reforming their own banking systems, he said.
The German Parliament planned to vote Wednesday on increasing the size of the eurozone bailout fund to more than $1.4 trillion, officials with Merkel's conservative bloc said.
The vote -- originally scheduled to be by just the chamber's budget committee, but expanded to the full parliament due to the decision's importance -- would take place after Merkel delivers a scheduled noontime parliamentary address and before she flies to Brussels for a second summit with eurozone and European Union leaders aimed at reaching a comprehensive agreement to contain the debt crisis.
