Euro bailout plan takes shape

Paris: European officials are outlining a rescue plan that may include deeper investor losses on Greek bonds, higher bank capital levels and increased firepower for bailouts and the International Monetary Fund.

The plan's elements emerged as finance ministers and central bankers from the Group of 20 began talks in Paris lobbying their European counterparts to end the two-year sovereign debt crisis. Underscoring the need for action, Standard & Poor's on Thursday cut Spain's credit rating for the third time in three years and new data showed the eight largest US money-market funds almost halved their lending to French banks last month.

Sense of urgency

"The sense of urgency is here," Eric Chaney, chief economist for AXA, Europe's second-largest insurer, said in a Bloomberg Television interview with Maryam Nemazee in Paris yesterday. "There will be a lot of pressure on Europeans to find a solution."

European leaders may complete the plan at an October 23 summit to present to a gathering of G20 chiefs on November 3 and 4. The aim is to craft what French Finance Minister Francois Baroin yesterday called a "durable, complete package" to fix the turmoil that has propelled Greece to the edge of default and is rattling global markets. Europe's Stoxx 600 headed for a third week of gains amid optimism policymakers will contain woes.

"Europe is clearly moving," US Treasury Secretary Timothy F. Geithner said in an interview yesterday with CNBC in Paris. "If you look at what they've been saying, they are talking about a much more comprehensive package of measures."

Australian Treasurer Wayne Swan told reporters that "the first priority" for the Group of 20 "is for Europe to put their own house in order".

Three months after banks and insurers agreed to a voluntary loss of about 21 per cent on their Greek debt, they are being pushed to accept a larger so-called haircut as Greece's economy deteriorates. German banks are preparing for losses of as much as 60 per cent, said three people with knowledge of the matter.

"A Greek debt writedown, even if it takes place, should only be ventured after careful and conscientious preparation in order to prevent anything worse from happening and to pave the way for structural reforms," German Chancellor Angela Merkel said.