Brussels warned on Wednesday that a convincing solution to the Greek debt crisis is vital at Thursday?s eurozone summit meeting, otherwise the global economy will pay the price.
European Commission President Jose Manuel Barroso delivered the message as eurozone officials and bankers were scrambling to work out solution proposals to be discussed on Thursday in Brussels by the 17 heads of state.
?Nobody should be under any illusion: The situation is very serious. It requires a response, otherwise the negative consequences will be felt in all corners of Europe and beyond,? Barroso told a news conference.
He said the elements of a solution must include measures to ensure the sustainability of Greek public finances, private sector involvement in funding for Athens, more flexible use of the European Financial Stability Facility (EFSF), repair of the region?s banking system, and liquidity to keep the economy going.
New International Monetary Fund chief Christine Lagarde will attend the summit after telling eurozone leaders they should put more money into the EFSF and allow it to buy government bonds on the secondary market.
Major European banks and insurers were to send eurozone governments a complex proposal late last night for helping in a planned 115-billion-euro second Greek bailout, industry sources said. One banking source said the banks were offering a mixture of debt rollovers, maturity extensions and other measures worth roughly 40 billion euros over three years, but the details have yet to be finalized.
Another source said negotiations were ongoing but that key elements would be a large rollover of expiring bonds for up to 30 years on credit-enhanced terms, and probably a much smaller buyback by the Greek government of its own bonds on the secondary market with money lent by the EFSF, although those options would almost certainly prompt credit rating agencies to slap Greece with a selective default label.
The banks are determined to fight a proposal for a tax on the financial sector to help pay for a second Greek rescue, which a eurozone working paper showed was seen as the least risky private sector contribution.