BRUSSELS, Oct. 27 (UPI) -- Negotiators struck a deal calling for a 50-percent write-down on Greek bond debt by private sector investors, European Union leaders said Thursday.
French President Nicolas Sarkozy said bondholders agreed to write down the value of Greek bonds, allowing Greece to reduce its debt load to 120 percent of its gross domestic product from 150 percent, CNN reported. Sarkozy said the agreement calls for increasing the European Financial Stability Facility "by four- or five-fold," as well as further funding by the International Monetary Fund.
European leaders had agreed Wednesday to help banks avoid sovereign debt defaults but had been unable to agree on financial aid to Greece, negotiators said.
Charles Dallara, the top negotiator for the Institute for International Finance, which represents private sector creditors, had said in an earlier statement the negotiations were hung up on the amount of Greek debt investors would be asked to forgo, The New York Times reported.
There had been agreement to accept write-downs of 21 percent but most plans being contemplated this week provide for a so-called haircut of about 50 percent, the newspaper said. Banks holding Greek debt had rebuffed government pressure for "voluntary" write-downs of 50 percent to 60 percent on their Greek bonds, banking and government officials said.
A European Union finance ministers meeting, that had been set for Wednesday before a Brussels summit meeting of EU leaders, was abruptly canceled Tuesday amid disagreements over writing down Greece's debt, bolstering the firepower of Europe's bailout fund and pumping as much as $150 billion into Europe's weakest banks.
One official told The Wall Street Journal the plan was to work with a 50 percent write-down by asking banks to turn in their current debt in exchange for new 30-year bonds with 6 percent coupons and 15 percent in cash.
"This will cut the face value of the entire $285.10 billion debt in private hands by half," the official said, indicating the ration of cash and bonds was not final, "but for now this is the plan we are working on."
The German Parliament Wednesday approved a plan to more than double the fund, from $610 billion to $1.4 trillion.
The smaller fund had been considered less than half as big as needed to help Italy alone cover its $2.8 trillion in debt, which amounts to about 120 percent of its gross domestic product, among the highest in the developed world.
At least $200 billion of the EFSF is already committed to Greece, Ireland and Portugal, and European leaders have not yet agreed on at least two options they are considering for enlarging the fund, officials said.
Those options include using money from the IMF and from non-European countries, including Asia and the Persian Gulf, Britain's Guardian reported.
Germany was also considering calling on the European Central Bank to stop buying weak-government bonds once the EFSF is able to do so, a draft resolution indicated. The resolution also called for a financial-transaction tax -- a proposal lofted in the United States by the grassroots Light Party, which claims a 50-cent stock-trade surcharge would generate $350 billion a year.
Other European governments, led by France, Europe's No. 2 economy, want to press the ECB to continue buying bonds.
Adding to the complexity, Greece said it needs more money.
Eurozone governments agreed in July to lend Greece $152 billion, in the second bailout deal for the country in a year. Germany insists new loans for Greece total "not much more than" the size of the last loan, a senior Berlin official told the Journal.
Italy -- which many economists fear could be next to collapse in debt if it fails to make major budget cuts swiftly -- was reported to have reached an 11th-hour accord Tuesday night to implement austerity measures.
Italian media said part of the deal included raising the retirement age for most people to 67 -- a compromise Italy said would satisfy an EU demand for supporting Italy's bonds -- along with privatizations and simplifying bureaucratic red tape
Some critics dismissed the proposals as window dressing.
