Eurozone in crisis talks as pressure mounts on Italy

EUROZONE finance ministers held crisis talks yesterday in a desperate bid to come up with a solution to the Greek debt problem and avoid the euro debacle escalating to include Italy.

Various solutions to cut what Greece owes to a more manageable amount is being closely watched by Ireland as it may offer the country a way to reduce its debt.

European stocks have slumped over fears for the eurozone’s future. In Milan, the FTSE Mib index closed at 18,295 points, down almost 4%. Italy’s two biggest lenders, Intesa Sanpaolo and UniCredit, fell 7% and 5.2% respectively.

Finance Minister Michael Noonan said he would be looking at any solutions to ensure they would not lead to contagion for Ireland.

“I have consistently stated the need for a Europe-wide solution and not just for ad hoc country by country solutions,” he said.

But the differences between member states on just how to do this again delayed the kind of solid solution needed to reassure markets.

While they have agreed to provide a second bailout to Greece, the triple-A rated countries of Germany, the Netherlands, Finland and Austria said that private holders of Greek debt, such as banks, must take a loss.

However, rating agencies have said they will consider that a default. The European Central Bank said it will not accept anything that would be considered a default by the markets.

It is believed the finance ministers are moving towards agreeing some kind of rollover, where private investors would extend the length of their loans for at least another eight years, even if this meant a technical default by Greece.

Dutch finance minister Jan Kees de Jager said: “If a compulsory contribution gives rise to a short and isolated rating event, then it is not so bad.”

Another idea is to allow Greece use some money from the EU’s fund to buy back its own bonds on the markets where they are selling for a fraction of their original value. This would mean changing the rules of the European Financial Stability Facility.

But all the countries now seem to agree the private sector must be involved.

Belgian finance minister Didier Reynders said: “We need to find a way to have some guidelines on the private-sector involvement and the solution for Greece. That’s the real issue.”

The banks are also demanding that the eurozone agrees to the buyback plan.

EU officials have been in talks for weeks about involving the Institute of International Finance in the Greek rescue, but have not yet reached a conclusion.

Now they warn that eurozone ministers need to agree to a buyback to avoid events spinning out of control and contagion spreading to Italy and Spain.

Following reports that US investors were betting against Italy, the eurozone’s biggest economy after Germany and France, the country’s financial regulator placed temporary curbs on short selling.

The moves were fuelled by a row between prime minister Silvio Berlusconi and finance minister Guilio Tremonti over plans to scale back government spending.