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Troika says Greece unable to raise money on market until 2021 under July deal with banks
BRUSSELS (AP) ' A report by Greece's international creditors on the country's ability to repay its debt says Athens won't be able to raise money on financial markets until 2021, unless banks take steeper losses on their bondholdings.
A person familiar with the report says a deal reached with banks in July to give Greece easier terms on its bonds would leave it with a debt of 152 percent of economic output in 2020.
The person says the analysis includes a "more realistic" assessment of growth, privatizations and deficits.
The person spoke on condition of anonymity, because the report is confidential.
A German official said earlier that Berlin was now pushing for a new deal with Athens' private creditors that would reduce Greece's debt to some 120 percent of GDP by 2020.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
BRUSSELS (AP) ' The finance chiefs from the euro's 17 countries hunkered down Friday to overcome differences over how to strengthen a bailout fund, which is key to preventing the currency union's debt troubles from spinning out of control.
Giving the euro440 billion ($607 billion) European Financial Stability Facility much more firepower is considered essential before the eurozone can deal with its two other main problems: cutting Greece's massive debts and forcing weak banks to boost their capital buffers to shore up their defenses against worsening market turmoil.
"Once we have the option for the leveraging (of the EFSF) then ' building on that ' we can develop all other points," said Austrian Finance Minister Maria Fekter, as the arrived for the meeting in Brussels.
Markets appeared to be giving Europe the benefit of the doubt, trading substantially higher Friday even though a wide-ranging plan to deal with the crippling debt crisis won't be in time for Sunday's summit of EU leaders. A second summit on Wednesday has been scheduled, and officials said a second eurozone finance ministers' meeting would likely be held Tuesday.
"Considering the importance of the discussions and their potential impact upon the European economy, global capital markets and the future of the EU itself, a delay of a few days is neither here nor there in the overall scheme of things," said Gary Jenkins, an analyst at Evolution Securities. "However the suggestions that they are still far apart on how to make best use of the EFSF is of some concern."
Governments have ruled out increasing their financial commitments, but they acknowledge that with some euro140 billion already going to Ireland, Portugal and Greece, the EFSF isn't big enough to both help recapitalize weak banks and keep big economies like Italy and Spain from being dragged into the crisis.
A failure to agree on the best way of maximizing the fund's impact between Germany and France forced European leaders to call the second crisis summit for Wednesday.
Austria's Fekter said up to seven technical options for giving the EFSF more leverage were currently on the table and both she and German finance minister Wolfgang Schaeuble ruled out the possibility that the fund will be able to tap into the vast resources of the European Central Bank. That proposal is still being pushed by France, which sees ECB help as the best way of giving the EFSF the necessary force.
A high-ranking German official, who declined to be named, said that a combination of two options had crystallized as the most likely solution.
The first would involve the bailout fund acting as an insurer for bond issues from wobbly countries like Italy. That would essentially compensate investors against a first round of losses and help to support their bonds and keep the borrowing costs from rising too far.
In addition, the International Monetary Fund ' which has already provided about a third of the bailout cash for Greece, Ireland and Portugal ' would supply other stragglers with precautionary credit lines to make sure they have ready access to cheap money.
Last weekend, at a meeting in Paris, the finance chiefs from the Group of 20 leading economies opened the door for a larger role by the IMF, but only if the eurozone first does its part.
IMF Managing Director Christine Lagarde, who joined the ministers in Brussels Friday, said that her institution would do everything it could to help Europe.
"We will find solutions," she said, without going into details.
Europe's leaders have already told their counterparts in the G-20 that they will have a plan ready to present to them at their next meeting in Cannes, France, in early November.
But Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said the announcement to delay all decisions until the next summit on Wednesday looked "disastrous" to the outside world. He also canceled a press conference that had originally been scheduled for after Friday's meeting, indicating that hopes were low of having clear results to present.
There appeared to be some progress on finding a solution on Greece, which has been paralyzed for much of this week. Sporadic outbreaks of violence during a two-day general strike against the government's austerity program claimed the life of one person on Thursday.
The German official said the aim was to bring Greece's debt down to about 120 percent of economic output, from more than 180 percent it is set to reach next year. That would most likely involve the banks taking a bigger hit on their Greek bond holdings, hence the need for a widespread recapitalization plan.
In nearly identical statements Thursday night, German Chancellor Angela Merkel and French President Nicolas Sarkozy asked Greece to immediately enter into discussions with private creditors on bringing its debt down to a sustainable level.
Sunday's summit will also examine setting up a permanent system to oversee Greek reforms, replacing the current quarterly visits by the IMF, ECB and European Commission debt inspectors known as the troika, which was "too nerve-wracking for everyone," the German official said.
A permanent body in Athens would also be able to react more quickly if Greek reforms were once again veering off target.
Eddy contributed from Berlin. Sarah DiLorenzo and Elena Becatoros in Brussels also contributed to this story.