Eurozone leaders set 50% write-down for Greek debt among rescue terms

European leaders have agreed with banks a 50% cut on outstanding loans to Greece, and said the eurozone rescue fund will be almost tripled in size.

After a gruelling meeting in Brussels that went through the night, the 17 eurozone leaders approved a mechanism to boost the eurozone’s rescue fund to about €1trn.

Greek Prime Minister George Papandreou said: “We can claim that a new day has come for Greece, and not only for Greece but also for Europe.”

European Commission president Jose Manuel Barroso said the package “confirms that Europe will do what it takes to safeguard financial stability”.

The leaders backed two ways of leveraging up the €440bn rescue fund. 

The fund will insure bond sales and create a special investment vehicle to garner outside money.

Given the Western world’s perilous economics, Asia is a likely target for backing this SIV.

French leader Nicolas Sarkozy is to speak to his counterpart in China, Hy Jintao, today about supporting the 27 eurozone leaders’ final plan.

The markets gave a mixed reaction to their efforts. By 0845 Greenwich Mean Time the euro was 0.5% lower against sterling.

But both the Cac 40 and Dax jumped sharply in early trading. In Paris and Frankfurt shares rose almost 3%. Asian equity markets had welcomed the limited success of yesterday’s meeting, with Sydney, Hong Kong and Tokyo all closing over 2% higher overnight.

In terms of helping bank creditors to Greece, some newspapers report this morning that the International Monetary Fund pushed for a 70% to 75% write-down.

Banks were believed to want a 40% limit, but were told of the plan for a sharper cut overnight.

Sarkozy said the bankers were summoned to Brussels “not to negotiate, but to inform them on decisions taken by the 17 and then they themselves went on to think and work on it”.

The eurozone leaders also want Europe’s banks to hold a larger cash buffer – of 9% of assets – by June, to help them weather such storms.

But to have such a cushion, Spain’s largest five banks would have to raise €26bn, roughly the same amount as Greece’s largest bank lenders. France’s biggest four would need €8,8bn extra, while Italy’s would need €14.7bn more.

Germany’s banks would need just €5.2bn more.

The European Banking Authority said Europe’s banks in total would need to raise €106bn, after tests on 70 banks throughout Europe.

They must submit plans on how they will do so to authorities by Christmas.

Despite this task, bank shares jumped this morning on news of the broader political deal. Societe Generale and Credit Agricole each jumped about 10% in early trading; Deutsche Bank advanced 8.5%; and Barclays rose 7%.

In other news related to the rescue plan, Germany’s parliament consented earlier yesterday to its Chancellor agreeing to expand the EFSF.

Angela Merkel had told the assembly: “The world is looking on Germany and Europe to see if we are ready and capable, in Europe’s most difficult hour of crisis since the end of World War II, to take on responsibility.”

She warned peace in Europe could not be guaranteed if the rescue, and the euro, failed. Only 89 of 596 parliamentarians voted against the possibility of enlarging the EFSF, possibly through leverage.

A fight had broken out in the Italian parliament during the day as the coalition attempted to work out its country’s contentious austerity plan.

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