Oct. 11 (Bloomberg) -- European leaders need a strategy for shoring up banks before plunging into the “sensitive” question of deeper-than-planned writedowns on Greek debt, Belgian Prime Minister Yves Leterme said.
Leterme said an Oct. 23 crisis summit should focus on boosting the 440 billion-euro ($601 billion) rescue fund instead of reopening a July accord to cut Greek bond values by an average of 21 percent.
“It is a very sensitive item,” Leterme said in a Bloomberg Television interview at his Brussels residence yesterday. “You can’t at every European Council change the percentages and bring supplementary problems to banks.”
Germany, Europe’s dominant economy, is pushing for a bigger reduction in Greece’s debt burden to forge a lasting solution to the fiscal crisis that has roiled markets and shaken confidence in the euro.
The search for a comprehensive fix led European leaders yesterday to push back the crisis summit by five days.
“It’s very essential that there is a strong signal in terms of the volume of money in the stability fund and also the monitoring of the economic performance of the member states of the euro zone,” Leterme said.
A planned upgrade of the fund, known as the European Financial Stability Facility, faces its sternest test today with a vote in Slovakia’s parliament. One party in the governing coalition is holding out against approval.
Non-ratification in Slovakia should lead the remaining 16 euro governments “to take over the burden and we’ll have to defend the euro,” Leterme said.
Leterme said Belgium isn’t heading for a credit downgrade in the wake of yesterday’s decision to buy the domestic consumer-lending unit of Dexia SA for 4 billion euros and guarantee 60 percent of a “bad bank” to be set up for Dexia’s troubled assets.
“I personally think the risk is not so high,” Leterme said. He said the operation will add only about 1 percentage point of gross domestic product to Belgium’s debt ratio.
The nation’s Aa1 local- and foreign-currency ratings were placed under review for a downgrade on Oct. 7 by Moody’s Investors Service, which cited rising funding risks for euro-area nations with high levels of debt and additional bank support measures that are likely to be needed.
To contact the reporter on this story: James G. Neuger in Brussels at firstname.lastname@example.org
To contact the editor responsible for this story: James Hertling at email@example.com