Did reality finally cause the end of Groundhog Day?
Published 27/10/2011 | 05:00
IT was Groundhog Day in Brussels as talks between EU leaders kicked off last night. The same faces, in the same place, to talk about the same things.
Given that, it hardly seems credible to write about a race to get a deal signed, but there was a rare sense of urgency among the leaders.
The most important decision political leaders took last night was to shelve talks about specific numbers and concentrate first and foremost on putting together the skeleton of a credible plan.
It meant that unlike every other summit since the crisis began the leaders could face up to the central reality of the crisis.
Greece has been bust for years now. No deal can work that doesn't involve making some of that debt go away.
Once that was accepted Europe needed to come up with a deal based on three crucial moving parts.
First Greece needs its debt slashed -- by up to €100bn -- if can ever return to growth.
Second, politicians want banks that made the loans to bear that cost. The third strand is to make sure cash is available if taxpayers across Europe have to cover the banks losses, as happened in Ireland when our banks collapsed.
Until one strand is nailed down, numbers cannot be finalised for the other two. Insiders in Brussels said the number for Greek losses must come first.
The head of the IMF, Christine Lagarde, who led the charge to face up to the Greek situation, thinks losses of 75pc for the banks are reasonable.
Europe will row back from that extreme figure -- it wants banks to volunteer to take the Greek losses so as to avoid a messy Greek default. The banks themselves have conceded something close to defeat.
Their latest proposal includes a 50pc loss on the value of Greek debt -- though it's thought to be based on a mix of real losses and the accounting loss that comes from waiting longer to be repaid some loans.
Talks with the banks broke down yesterday, but will resume tomorrow.
Last night's decision to move towards such swingeing losses leaves the door open for demands that Ireland also gets a cut in its €160bn debt mountain. It's certainly sure to raise a furore when Anglo Irish Bank repays a €750m bond next week.
For Irish negotiators though, a crucial issue last night was the support that Europe will give top countries on the way out of bailout deals, or at risk of a bailout. That will come down to how much firepower the European bailout funds have to fight contagion in the markets.
Today the most important rescue fund has €440bn available. Of that, €140bn is already committed to bailout countries and €100bn may be needed to immunise banks against Greek losses, leaving little left to battle the markets.
Germany has ruled out simply increasing the fund, so leaders focused instead on making it more effective.
It's a long way from over but for the more than 300 million of us that use the euro there is at least a possibility that realities are finally being confronted.