WASHINGTON (MNI) – The following is a roundup of key developments
and events Wednesday in the ongoing European sovereign debt crisis:

* Eurozone leaders on Thursday will almost certainlyexpress a
strong commitment to solving the EMU debt crisis and might even outline
measures they are willing to accept, but they are likely toleave the
details and implementation to their finance ministers,well-placed
European Union sources told Market News International. A statement of
principle — and a powerful one at that — can beexpected from the
Brussels summit, but not a specific and definitiveblueprint, they said.
“I presume that the EU summit, if no breakthrough is made byThursday,
will come up with a clear political statement outlining theprinciples of
the new agreement and will leave the finance ministers toiron out the
technical and legal details,” said one EU source.

* The German government believes that Eurozone leaders will
agree on the conditions for a second fiscal aid package for Greece at
their summit in Brussels on Thursday, German government spokesman
Steffen Seibert said Wednesday. “Chancellor [Angela Merkel] will travel
to Brussels tomorrow and we are very confident that a good and
progressive solution can be reached there,” the spokesman said at a
regular government press conference. The German government still insists
on a private sector contribution to the second fiscal aid package for
Greece, the spokesman said. “For the federal government, the private
sector involvement is a highly important value and it is a target that
it is pursuing,” he stressed.

* Some European officials are proposing a tax on eurozone banks
to pay a portion of the financial rescue package for Greece, the
Financial Times reported Wednesday. The plan, which is seen raising some
E30 billion, is expected to be discussed at the emergency European
summit on Thursday. Advocates of the plan say it would help satisfy
German and Dutch demands that private holders of Greek bonds contribute
to the new E115 billion rescue plan. Such a contribution could also
avoid a formal default on Greek debt, they argue. Banking groups
indicated opposition to the plan, which they say scape-goats banks for
Greece’s troubles.

* EU leaders are looking at ways of increasing the flexibility
of the European Facility Stability Fund (EFSF) that would allow the
establishment credit lines for countries like Spain and Italy as a way
of preventing contagion, according to a report in Wednesday’s Financial
Times Deutschland. The EFSF funds would be made available to members
ahead of being used as a permanent crutch, as for states like Greece,
Portugal or Ireland, the paper noted. The measures will be discussed
ahead of Thursday’s summit in Brussels, the FTD said, without specifying
sources.

* German Chancellor Angela Merkel and French President Nicolas
Sarkozy will meet in Berlin Wednesday afternoon to prepare Thursday’s
Eurozone summit, the German Chancellery confirmed Wednesday. They will
likely agree on a joint position on Greece, according to German
government spokesman Steffen Seibert. “There is confidence on both sides
that such a joint position can be worked out today,” he said.

* European Commission president Jose Manuel Barroso, on
Wednesday urged EU leaders to agree a minimum of five points at
Thursday’s summit on the Greek debt crisis. “The situation is very
serious,” Barroso told journalists at a hastily convened press
conference. The urgent issues the European Commission president said
must be addressed are: the sustainability of Greece’s public finances;
the feasibility and limits of private sector involvement in a bailout;
the scope for more flexible options through the EFSF; repair of the
banking sector; and measures to ensure the provision of liquidity to the
banking sector.

* The European Commission today presented a proposal for new
banking regulations that aim to raise capital requirements and enhance
risk management at the EU’s 8,000 banks. The new legislation will
require European banks, which have over half the world’s assets, to hold
more and higher quality capital, and it introduces new rules on
liquidity and leverage, in line with the internationally agreed Basel
III guidelines. Essentially translating the Basel III rules into EU law,
the commission’s proposal requires banks across the EU to hold
additional capital in the form of “capital conservation buffers” and to
set aside capital in good economic times to buffer against the bad
times.

* Germany’s public deficit last year will likely have to be
revised up by around half a percentage point from 3.3% of GDP due to the
rescue of the state-owned Hypo Real Estate (HRE) bank, the German
business daily Handelsblatt reported Wednesday, citing government
sources. According to the newspaper, the Federal Statistics Office will
publish the revised data on September 1.

* Eurozone government must avoid a selective default for Greece
and stop the political “yo-yo” that is creating uncertainty in the
markets, European Central Bank Executive Board member Juergen Stark said
in an interview with Germany’s BoerseZeitung. Governments must stick to
the decision they made at their June 23-24 summit, at which they
committed to avoiding a selective default for Greece, Stark said.

* Credit rating agency Fitch, in a report published Wednesday,
said it considered the risks of a US default remote and highlighted the
need for a resolution to the Greek crisis to avoid EU contagion. A
disorderly Greek default would be likely to result in severe market
volatility, pressures on sovereign as well as bank funding and
liquidity, and a broader repricing of euro area sovereign credit. The
risk of contagion to other distressed and vulnerable euro area
sovereigns and their banking systems is material. Resolution of the
Greek crisis is therefore a necessary, though not a sufficient condition
for preventing a broader systemic threat to the euro area.

–Editor: Brai Odion-Esene; besene@marketnews.com

** Market News International Washington Bureau: 202-371-2121 **

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