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Euro zone considers Greece

Eurozone Greece

Eurozone Greece

European finance ministers are considering making banks take bigger losses on Greek debt and have postponed a vital aid payment to Athens until mid-November, setting up a crunch point in the euro zone’s sovereign debt crisis.

Greek Finance Minister Evangelos Venizelos said the country had enough cash to cope until then and insisted that euro zone ministers were not preparing for a Greek default, despite the ominous delay.

“There is no discussion of default,” Venizelos told a news conference on returning to Athens on Tuesday.

Bank shares took a sharp tumble, leading a broader stock market retreat, after the 17 finance ministers, meeting in Luxembourg, called for a review of a July 21 debt swap agreement with private holders of Greek bonds.

The euro hit a nine-month low against the dollar and a 10-year low against the yen. Investors sought refuge in German government bonds, but the cost of insuring even those safe-haven Bunds against default hit another record.

Analysts said the delay in disbursing an 8 billion euro loan installment and the reopening of the private sector deal raised the chances of a default as soon as the currency area has its new financial firefighting tools in place. Greece had previously said it needed the money to pay October salaries.

“If they are having problems getting the sixth tranche of funding, what’s going to happen to the seventh tranche of funding in three months’ time? The situation is going to be even worse then. So Greece is on the brink,” said Nick Stamenkovic, bond strategist at RIA Capital Markets.

Investor confidence was also hit by deepening trouble at Franco-Belgian bank Dexia, a municipal lender with big holdings of Greek and other peripheral euro zone debt, whose shares plunged by more than 20 percent on Tuesday after losing 10 percent on Monday.

The French and Belgian finance ministers said in a joint statement that Paris and Brussels and their central banks would take all necessary measures to safeguard Dexia account holders and creditors.

Jean-Claude Juncker, chairman of the 17-nation Eurogroup, said ministers were reassessing the extent of private sector involvement in a planned 109 billion euro second rescue package for Greece which may now prove insufficient after Athens admitted it would miss key deficit targets.

Under the July deal, private creditors agreed to a 21 percent write-down on their Greek holdings via a plan to lighten and stretch the debt burden, with euro zone governments funding credit enhancements to attract voluntary participation.

Now that Greece’s economic growth and deficit situation has worsened, that deal needed to be reviewed, Juncker said.

“As far as the PSI (private sector involvement) is concerned, we have to take into account the fact that we have experienced changes since the decisions we took on the July 21, so we are considering technical revisions, so yes,” Juncker told reporters. He declined to elaborate.

full story – reuters