Bank plan to save single currency

CurrencyAn injection of funds into a number of continental banks is the cornerstone of the three-pronged plan being discussed to save the single currency.

The shoring up of banks under a recapitalisation scheme would allow Greece to default on its debt, something leaders have been nervous of because of the potential damage to Europe's banks, which hold billions in Greek debt.
City sources told the Sunday Times that the third part of the plan, which is expected to cost up to three trillion euros (£2.6 trillion) in total, involves additional firepower for the European Financial Stability Facility (EFSF).

The newspaper said the plans, reportedly under discussion by G20 finance ministers and the IMF in Washington, may be unveiled within days. It comes amid warnings that the FTSE 100 Index could fall as low as 4000 without rapid and radical intervention.
The injection of funds into at least 16 continental banks could see governments provide "contingent" capital, equivalent to reserves that banks can draw on only if needed.

It has been reported that the recapitalisation would include French banks, as well as going further than the £2 billion required by regulators following stress tests in July.

The plans would lead to an orderly default by Greece and allow the country to remain within the eurozone, although private sector creditors would end up bearing a loss as high as 50%.

The Sunday Telegraph said officials hoped the plan would take the pressure off Spain and Italy, which are in need of long-term structural reform.

It is thought that the EFSF would need about 2 trillion euros (£1.75 trillion) to meet the financing needs of the two countries if they are shut out of the markets. Officials are said to be working on a way to leverage the EFSF through the European Central Bank to reach the target, the paper said.

© 2011 Press Association
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