BRUSSELS (MNI) – Banks need to write off a “substantial” proportion
of their sovereign Greek debt holdings in order to restore credibility
to the Eurozone rescue effort, Swedish Finance Minister Anders Borg said
Saturday.

“It’s pretty obvious that we need a substantial haircut on the
Greek debt,” Borg said as he arrived for a meeting of European Union
finance ministers here. “We have to resolve this in order to restore
credibility” to the rest of the system, he said.

Borg’s comments came amid reports that ministers here were
discussing Greek debt writeoffs of up to 60%, nearly three times the 21%
discount negotiated at the July 21 Brussels summit.

Maria Fekter, the Austrian finance minister, told reporters that
negotiations with banks on a larger Greek debt haircut were underway,
led by Vittorio Grilli, director general of the Italian Treasury and
chairman of the Eurozone’s Economic and Financial Committee.

She said she could not comment on the size of the haircut for fear
of jeopardizing those negotiations.

The 17-nation Eurogroup approved the latest installment of Greek
aid, totaling E8 billion, on Friday. The group said in a statement that
“we will conclude a second economic adjustment programme for Greece,
with an appropriate combination of additional new official financing and
private sector involvement.”

A report by official international lenders, widely quoted in the
Greek and international media, said the private sector would need to
forgive 60% of what Greece owes in order to reduce Greek debt to 110% of
GDP by 2020. A report by the European Commission and European Central
Bank, released on Thursday, had said Greek debt could peak at 181% of
GDP if the current trajectory continues.

Arriving at Saturday’s EU finance ministers’ meeting, Greek Finance
Minister Evangelos Venizelos called the approval of the aid tranche “a
good, positive and constructive step.” He added that “Greece is not the
central problem of the Eurozone. The point now is to implement the
decisions of “21 July-plus.”

–Paris newsroom, +331-42-71-55-40; jduffy@marketnews.com

[TOPICS: M$X$$$,MGX$$$,M$$EC$,M$$CR$,MT$$$$]