Germany and France reach Greek accord

 
Germany and France appeared to settle their differences late on Wednesday over a new rescue package for Greece.
No immediate details were available but Steffen Seibert, a spokesman for Angela Merkel, the German chancellor, said "a common German-French position" had been agreed and ­discussed with Jean-Claude ­Trichet, president of the European Central Bank, and Herman van Rompuy, president of the European Union.
The breakthrough came after Nicolas Sarkozy, French president, rushed to Berlin to hammer out a Greek rescue plan that could include €71bn (£63bn) in bail-out funds from global lenders and a €50bn tax on eurozone banks, proceeds from which would be used to buy back 20 per cent of Greece's €350bn in outstanding debt.
The proposals, included in a plan circulated by the European Commission ahead of an emergency summit on Thursday, also include a bond exchange programme under which private owners of Greek debt would be encouraged to swap their holdings for new 30-year bonds. The swap plan could reduce Greek debt by an estimated €90bn. It would be offered, with credit sweeteners, to owners of bonds due in the next eight years.
Senior bank executives involved in talks with European negotiators said a final plan was likely to include either the bank tax or the bond exchange programme -- but not both.
José Manuel Barroso, Commission president, had warned: "Nobody should be under any illusion: the situation is very serious. It requires a response. Otherwise the negative consequences will be felt in all the corners of Europe and beyond."
Officials said Mr Barroso's plan would expand the powers of the eurozone's €440bn bail-out fund. It would be allowed to offer lines of credit to eurozone countries not receiving bail-outs and to recapitalise banks in those countries. In the past 14 months, the EU has bailed out Greece, Ireland and Portugal.
Berlin was lukewarm towards the bank tax proposal. According to officials, it would amount to a 0.0025 per cent levy on all assets held by eurozone banks and would raise €10bn per year for five years. The cash would go to the bail-out fund, which would then use the money to conduct a Greek bond buy-back.
Bank executives said momentum was building towards the tax plan, which has Paris's backing and would not lead to a default in Greek bonds. France has concerns about bond swaps, which would lead to a temporary Greek default. The European Central Bank fears that even a selective default could lead to panic in eurozone bond markets.

The officials said that under the bond swap plan, additional government money would be needed to recapitalise European banks holding Greek debt. The plan would also need to ensure there was new collateral for Greek banks, which now use Greek bonds as collateral for loans from the ECB. The bank has threatened to cut Greek banks off during a default, which would freeze the Greek financial system.