Greek Debt Talks Risk Derailing EU Summit Plan Q By Patrick Donahue - Jan 30, 2012 12:48 PM GMT+0530 Mon

Jan 30 07:18:27 GMT 2012 More o Business Exchange o Buzz up! o Digg Print Email Enlarge image Greek Debt Talks Risk Derailing EU Summit Kostas Tsironis/Bloomberg A Greek national flag hangs behind Greek finance ministry in Athens, A Greek national flag hangs behind Greek finance ministry in Athens, rg a security fence at an emergency exit for the Greece. a security fence at an emergency exit for the Greece. Photographer: Kostas Tsironis/Bloombe

Play Video Q Jan. 29 (Bloomberg) -- Billionaire investor George Soros, German Chancellor Ange la Merkel, International Monetary Fund Managing Director Christine Lagarde and U .S. Treasury Secretary Timothy Geithner discuss the outlook for the European sov ereign-debt crisis. European Central Bank President Mario Draghi, European Commi ssioner for Economic and Monetary Affairs Olli Rehn, New York University profess or Nouriel Roubini and Mexican President Felipe Calderon also comment in this re port. They spoke at the World Economic Forum's annual meeting in Davos, Switzerl and. (Source: Bloomberg) Play Video Q Jan. 28 (Bloomberg) -- Josef Ackermann, chief executive officer of Deutsche Bank AG, talks about the outlook for Greece and the need to avoid a default. He spea ks with Bloomberg Television's Caroline Connan at the World Economic Forum's ann ual meeting in Davos, Switzerland. (Source: Bloomberg) Play Video Q Jan. 27 (Bloomberg) -- Gerard Lyons, chief economist at Standard Chartered Plc, talks about the euro-region debt crisis and the outlook for the global economy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Sourc e: Bloomberg) Play Video Q Jan. 30 (Bloomberg) -- Carsten Brzeski, an economist at ING Group, talks about e fforts to reach an agreement on a Greek debt writeoff. He speaks from Brussels w ith Caroline Hyde on Bloomberg Television's "First Look." (Source: Bloomberg) European Union leaders gather for their first summit of 2012 as a deteriorating economy and struggle to complete a Greek debt writeoff risk sidetracking efforts

to stamp out the financial crisis. EU chiefs arrive in Brussels about 2 p.m. today to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-eu ro ($661 billion) rescue fund to be set up this year. Greece and its private cre ditors said Jan. 28 they expect to complete a deal in coming days after bondhold ers signaled they would accept European government demands for a bigger cut in t heir debt holdings. Efforts to hold the 17-nation euro area together with bolstered fiscal rules and a stronger firewall are colliding with stalled progress in Greece, where the cr isis began in 2009. To prevent a financial collapse, Greek bondholders have been pushed to cede more ground after agreeing in October to take a 50 percent cut i n the face value of more than 200 billion euros ($263 billion) of debt. The fact were still at the beginning of 2012 talking about Greece is a sign this p roblem hasnt been dealt with, U.K. Chancellor of the Exchequer George Osborne said at the World Economic Forum in Davos, Switzerland. No Longer Enough The summit follows warnings at the gathering that ended yesterday in Davos that its time to end the regions debt crisis and that measures aimed at simply containi ng the turmoil are no longer enough. The euro economy is set to contract by 0.5 percent this year, according to the median of 19 economist forecasts compiled by Bloomberg. The European Central Banks unlimited three-year loans to banks have helped buoy s entiment among investors in the euro area. Italian 10-year bonds gained for a th ird week, while Spanish two-year yields dropped to the lowest since November 201 0. The euro gained against the U.S. dollar every day last week, climbing 2.2 per cent on the week. The European currency was down 0.5 percent at $1.3151 at 8:17 a.m. in Brussels. We can say -- with caution -- that we see elements of financial stability in Fran ce, in Europe and in the world, French President Nicolas Sarkozy said in a nation ally televised interview in Paris yesterday. Europe is no longer at the edge of t he cliff. Debt Sales That optimism will be tested this week as European nations including Italy, Belg ium and Spain sell about 22 billion euros of debt securities. Italy auctions as much as 6 billion euros of five- and 10-year debt today, along with securities d ue in April 2016 and March 2021. Belgium sells as much as 3 billion euros of bil ls tomorrow, with Spain, Portugal, Germany and France issuing 13 different matur ities during the week. Attention before the Brussels summit turned to negotiations between the interim government of Greek Prime Minister Lucas Papademos and creditors. The two sides were close to an agreement outlined by Luxembourg Prime Minister Jean-Claude Junck er, the Institute of International Finance, negotiating on behalf of private cre ditors, said in a Jan. 28 statement after three days of talks in Athens. Creditors are prepared to accept an average coupon of as low as 3.6 percent on n ew 30-year bonds, said a person familiar with the talks, who declined to be iden tified because a final deal hasnt been struck yet. As recently as Jan. 23, credit ors wanted an average coupon of about 4.25 percent, two people familiar with the talks said then. That offer equated to a loss of about 69 percent on the net-pr esent value of Greek debt. Last Minute The initial debt-swap agreement with creditors three months ago sought to scale back Greeces debt to 120 percent of gross domestic product by 2020. The anticipat ed agreement on private sector involvement, or PSI, will open the way to a 130 b illion- euro second bailout from Greeces European partners and the International Monetary Fund for the country, which faces a 14.5 billion-euro bond payment Marc h 20. A deal on PSI will be reached at the last minute, Niall Ferguson, a professor of e conomic history at Harvard University, said in a Davos interview. The trouble for Europe is the crisis wont be over as the Greek position remains unsustainable. A ny PSI deal will bring only temporary respite.

Greece now requires 145 billion euros for the second bailout, 15 billion euros m ore than was agreed in October, Der Spiegel reported Jan. 28, citing an unidenti fied official from the troika in Greece. As a possible condition of the bailout, European policy makers are discussing pl ans to directly intervene in Greek budget decisions as the country struggles to cut its deficit, according to two euro-region government officials. U.K. Refusal Patience with Greece is really coming close to the limit, Philipp Roesler, chief o f Germanys Free Democratic Party, the junior coalition partner. Time is running ou t. There can only be additional help if the Greek government carries out the nec essary reforms. Another objective at the summit will be to complete a fiscal compact, which was negotiated in December in talks that exposed a rift in the EU after the U.K. ref used to participate. The rules aim to provide stricter sanctions and closer coop eration on national budgets. A call by Poland, the biggest country with aspirations to join the single curren cy, to take part in euro-area decision- making looms as the main obstacle to the deal, two officials said. Polands plea to take part in euro summits is opposed b y a group led by France, which aims to turn the 17-nation monetary union into an exclusive policymaking club. Future Action Were willing to put our signature to the pact, but on the understanding that were t aking part in it only if we have a voice in deciding about future action, includ ing of the euro group, Polish Prime Minister Donald Tusk said on Jan. 27. Over the weekend, senior officials worked to clear away lesser snags to the trea ty, including the role of national parliaments and the ratification threshold. A draft last week foresaw the treaty taking effect after ratification by 12 of th e 17 euro countries. EU leaders plan to endorse the statutes of the permanent bailout fund, the Europ ean Stability Mechanism, to be signed in early February and sent to national par liaments to ratify. The ESM is scheduled to go into operation this year. Leaders are unlikely to address mounting pressure to raise the ceiling on rescue lending from 500 billion euros once the permanent fund goes online, the officia ls said. To contact the reporter on this story: Patrick Donahue in Berlin at pdonahue1@bl oomberg.net To contact the editor responsible for this story: James Hertling at jhertling@bl oomberg.net