Reports from the International Monetary Fund (IMF) in Washington have begun to suggest that a rescue plan for the eurozone is being outlined. This plan will mean a 50% write down of the government debt in Greece, according to analysts. The bailout fund for the European Union will increase as well to two trillion euros, or £1.7 trillion or $2.7 trillion.
No Room for Failure
The plan will hopefully be in place in around five or six weeks, though the outline will be difficult to make into a reality. However, failure could mean that the slow growth seen globally could turn back into a recession or be potentially worse still. Markets have reflected the poor impression investors have had about the speed and way in which governments have dealt with the debt crisis. Experts say that the only way to calm the market turmoil is to act rather than make plans and speeches.
The G20 spoke over the weekend, saying it was still committed to a “strong and coordinated international response”, though investors will need more, as the G20 gave no details about how this would occur. Monday morning saw a drop in Asian shares, with the Nikkei in Japan down by 2.2%, the Hang Seng in Hong Kong decreasing by 2.4%, and the Kospi in South Korea dropping 2.6%.
Here are the Plans…
The recue ideas have begun after last week’s meeting in Washington DC. Currently, the main bailout fund for the eurozone, the European Financial Stability Facility (EFSF) has seen 440 billion euros. These proposals would mean an increase of 400%, or a quadrupling of the amount, through allowing the European Central Bank (ECB) to lend in addition to the fund. The main risk of lending would be taken by the EFSF, meaning the ECB would have less danger.
In addition, private investors in places like Greece would likely have to accept that they will only get half of what they are owed. Greek Finance Minister Evangelos Venizelos has said after a discussion with the head of the IMF, Christine Lagarde, that Athens will do “whatever it takes”. Eurozone banks will also become strengthened in order to cope with some losses.