Leading banks are at loggerheads with European leaders after lenders offered to accept losses of up to 40pc on their Greek debt holdings, a proposal seen as insufficient by politicians.
The offer – an increase on the banks' previous proposal of a 21pc 'haircut' – is set to trigger a tense period of negotiations and could determine the success of a crucial European summit on Wednesday. The IMF is thought to be calling for a 60pc haircut while Europe's leaders are demanding at least 50pc, but bankers have warned that anything over 40pc risks setting off a 'credit event', triggering credit default swaps.
David Cameron travelled to Brussels for the conclusion of a weekend of talks between European leaders but, as feared, politicians were unable to agree definitive moves to halt the crisis. ... Mr Cameron yesterday called on his European peers to redouble their efforts: "The crisis in the eurozone is having a chilling effect, not just on eurozone economies, not just on market confidence but on the British economy too. They need to come together and take responsibility for their currency."
...In a victory for Germany, leaders agreed that the European Central Bank would not play a role in boosting the EFSF's firepower. The agreement, a blow for France which had been hoping to use the ECB to lend potentially limitless funds, will raise further questions as to how politicians will boost the EFSF's strength. The focus appears now to rest on the EFSF being used to guarantee government bond sales....