Brussels, 18/07/2011 (Agence Europe) - The president of the European Council, Herman Van Rompuy, has convened a special summit of eurozone leaders in Brussels on Thursday afternoon, 21 July, to discuss financial stability across the eurozone and the financing of the new Greek aid programme, as he explained on Twitter on Friday night. Persistently high interest rates demanded for rolling over Spanish and Italian sovereign debt mean that the EU17 will have to act quickly to stem the risk of the debt crisis spreading any further. The Chancellor of Germany, Angela Merkel, warned on Sunday, however, that she would only come to the meeting in Brussels if there were positive results in terms of private sector involvement in the Greek aid programme.
Negotiations are intensifying to get the private sector to chip in to the costs of the second Greek bailout, expected to be of a similar size as the first bailout, €110 billion. The options on the table include Greece buying back some of its own bonds, either directly or using the European EFSF bailout fund. This idea seems to be popular. Germany's finance minister said that the buy back of Greek bonds could reduce the debt by €20 billion, but there is a huge risk that rating agencies will see this as amounting to a selective default. The European Central Bank is firmly opposed to any default, fearing that it would destabilise the entire European banking system. If Greece does default, the president of the ECB, Jean-Claude Trichet, told FT Deutschland on Monday 18 July, the ECB would stop accepting Greek bonds as guarantees. This would prevent Greek banks from being able to borrow cheaply from the European bank. Trichet said this would force governments to intervene and shore up the struggling Greek banks and other banks in Europe with great exposure to Greek debt. (M.B./transl.fl)