A. France wants the euro bailout fund to become a bank and borrow from the ECB, boosting its €440bn firepower. The leveraged fund would then be used to help troubled banks and nations. Germany believes this breaks treaties preventing the ECB from funding state spending. It favours using the fund to take the first 20 per cent of losses on sovereign debt, cutting risk for investors; or asking countries like China and Brazil to beef up the fund.
Q. AND HOW ABOUT THE GREEK HAIRCUT?
A. Politicians, led by Germany, want private investors to agree to a 50 per cent haircut, reducing Greece’s national debt to 120 per cent of GDP. However, debtholders, mostly in the form of European banks, say this is too much, and want a haircut of 40 per cent or less. Either way, this is much larger than the 21 per cent agreed in July, reflecting politicians’ admission that Greece is still insolvent.
Q. WHAT IS THE PLAN ON BANK RECAPITALISATION?
A. Supposedly, agreement has been reached on a framework, but no details announced. It is expected that the newest round of stress tests will result in a capital-raising requirement of €110bn for Europe’s weakest banks. However, some analysts warn that over €400bn could be needed.