Crisis summit of leaders now to take place on Thursday
Published 16/07/2011 | 05:00
EUROPEAN leaders will meet on Thursday for emergency talks aimed at containing the debt crisis, and agreeing a second bailout for Greece, European Council President Herman Van Rompuy said yesterday.
President Rompuy called the meeting with a tersely worded statement issued last night.
"Our agenda will be the financial stability of the euro area as a whole and the future financing of the Greek programme," the statement said.
It's the first time European leaders have been brought together since Italy and Spain became embroiled in the debt crisis, when the cost of long- term borrowing for both countries shot passed 6pc for the first time on Monday.
That raised fears both countries could be forced out of the debt markets, in the same way Ireland was last year. The risk to Italy is a major concern because it is simply too big to bail out.
Bond yields for both countries rose after European leaders failed to break the impasse over how to involve private sector investors in the second Greek bailout deal, without triggering a Greek default.
Italy's parliament made its own move to win back investor confidence by approving a €48bn austerity package yesterday.
The initial priority at Thursday's summit in Brussels will be getting agreement on how to share the cost of the second Greek bailout with private sector lenders to the country. Political leaders want banks and insurance companies to provide around €30bn of a €110bn package. They disagree over how that should happen.
Among the possibilities likely to be discussed is a buyback of Greek bonds at a discount using new loans from the European rescue funds, an exchange of current Greek bonds for much longer terms bonds, or agreement from lenders to re-lend money as soon as it falls due. The first two options could be classed as defaults by ratings agencies. The third option is more piecemeal, and less comprehensive than many countries are prepared to allow.
It's less clear whether a more comprehensive plan, such as introducing a common European bond, will be on the table, which would undoubtedly means closer budget links between member states.
Meanwhile, European government bonds continued to suffer last night. The yield on Irish two-year bonds was more than 22pc, while the yield on 10-year bonds was 13.7pc.