by Calculated Risk on 10/26/2011 10:49:00 PM

EURO SUMMIT STATEMENT. Excerpts:

The Private Sector Involvement (PSI) has a vital role in establishing the sustainability of the Greek debt. Therefore we welcome the current discussion between Greece and its private investors to find a solution for a deeper PSI. Together with an ambitious reform programme for the Greek economy, the PSI should secure the decline of the Greek debt to GDP ratio with an objective of reaching 120% by 2020. To this end we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro. On that basis, the official sector stands ready to provide additional programme financing of up to 100 bn euro until 2014, including the required recapitalisation of Greek banks. The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012. We call on the IMF to continue to contribute to the financing of the new Greek programme.

On EFSF:

We agree that the capacity of the extended EFSF shall be used with a view to maximizing the available resources in the following framework:
• the objective is to support market access for euro area Member States faced with market pressures and to ensure the proper functioning of the euro area sovereign debt market, while fully preserving the high credit standing of the EFSF. These measures are needed to ensure financial stability and provide sufficient ringfencing to fight contagion;
• this will be done without extending the guarantees underpinning the facility and within the rules of the Treaty and the terms and conditions of the current framework agreement, operating in the context of the agreed instruments, and entailing appropriate conditionality and surveillance.

19. We agree on two basic options to leverage the resources of the EFSF:
• providing credit enhancement to new debt issued by Member States, thus reducing the funding cost. Purchasing this risk insurance would be offered to private investors as an option when buying bonds in the primary market;
• maximising the funding arrangements of the EFSF with a combination of resources from private and public financial institutions and investors, which can be arranged through Special Purpose Vehicles. This will enlarge the amount of resources available to extend loans, for bank recapitalization and for buying bonds in the primary and secondary markets.

20. The EFSF will have the flexibility to use these two options simultaneously, deploying them depending on the specific objective pursued and on market circumstances. The leverage effect of each option will vary, depending on their specific features and market conditions, but could be up to four or five.

UPDATE: IIF Statement: (ht Brian)

Institute of International Finance

October 27, 2011 – Brussels, Belgium:

The following statement was issued by Mr. Charles Dallara, Managing Director
of the Institute of International Finance:

We welcome the announcement by the leaders of the Euro Area of a
comprehensive package of measures to stabilize Europe, to strengthen the
European banking system and to support Greece's reform effort. On behalf of
the private investor community, the IIF agrees to work with Greece, Euro
Area authorities and the IMF to develop a concrete voluntary agreement on
the firm basis of a nominal discount of 50% on notional Greek debt held by
private investors with the support of a 30 billion Euro official PSI
package. This should set the basis for the decline of the Greek debt to GDP
ratio with an objective of reaching 120% by 2020.

The specific terms and conditions of the voluntary PSI will be agreed by all
relevant parties in the coming period and implemented with immediacy and
force. The structure of the new Greek claims will need to be based on terms
and conditions that ensure an NPV loss for investors fully consistent with a
voluntary agreement.

by Calculated Risk on 10/26/2011 10:12:00 PM

via twitter: "Agreement on a comprehensive package reached at today's #Eurosummit."

Press conference soon.

Council of the European Union (official releases)

EU Press Releases (no statement yet)

Earlier:
• New Home Sales increase in September to 313,000

by Calculated Risk on 10/26/2011 08:14:00 PM

UPDATE: AP reports an official said there is "broad agreement" on cutting Greek debt. Apparently this is a 50% cut ... no details.

Telegraph: Debt crisis: live

00.30 Jean-Claude Juncker's (head of the euro group) spokesman has told Bloomberg that Merkel and Sarkozy have met with bank representatives and are now relaying the outcome to the rest of the eurozone leaders.

Bottom line, Germany wants banks to accept they will lose between 50pc and 60pc of their Greek sovereign debt investments. The banks don't want this. Question is, where do they meet in the middle?

WSJ: Live Blog: European Debt-Crisis Summit

Talks on leveraging the EFSF could drag into November, says a source.

From the NY Times: Europe Agrees on Plan to Inject Capital Into Banks

European leaders agreed Wednesday on a plan to force the continent’s banks to raise new capital to insulate them against potential sovereign debt defaults, but disagreements over new financial aid to Greece threatened to derail efforts to devise a comprehensive solution ...

“There has been no agreement on any Greek deal or a specific ‘haircut,’ said Charles Dallara, the lead negotiator for the Institute for International Finance. “We remain open to a dialogue in search of a voluntary agreement. There is no agreement on any element of a deal.”

Financial Times.

Council of the European Union (official releases)

EU Press Releases (nothing yet as of 8:15 PM ET)

by Calculated Risk on 10/26/2011 06:56:00 PM

While we wait for a European announcement ...

Bloomberg reports: Sarkozy, Merkel, Lagarde, Van Rompuy Meeting Bankers’ Dallara. They are still working on the size of the haircut.

The Social Security Cost-of-Living adjustment is official: 3.6%.

The Contribution and benefit base will increase to $110,100 in 2012 from $106,800.

As I mentioned earlier, I'm making changes to graphs. If you click on a graph in a post, a larger graph will be displayed. If there are more than one graph in the post, then thumbnails will be displayed for the other graphs. This is very fast!

The galleries of current graphs is moving to http://www.crgraphs.com/. So far I've moved:

New Home Sales
Existing Home Sales
House Prices
Employment Graphs

Click on any graph and a large graph will be displayed with thumbnails along the bottom. Click on the "X" on the upper right to close.

by Calculated Risk on 10/26/2011 02:16:00 PM

This is a great resource from the Financial Times: Eurozone crisis: live blog The meeting starts at 7:15 PM Brussels time and will probably continue late into the night.

A few stories ...

From the Financial Times: EU bids to slash Greek debt by third

From the WSJ: Europe Still Split On Crisis Package

The euro zone and banks are working on a plan that will cut the Greek debt held by private investors by 50% ... According to the plan, banks will be asked to exchange existing bonds for new 30-year bonds, carrying a 6% coupon plus 15% in cash, the official said. ... "This will cut the face value of the entire €205 billion ($285.10 billion) debt in private hands by half."

From CNBC: Stocks Jump on Signs of EU Debt Talk Progress

The euro zone is planning on leveraging its EFSF bailout fund "several fold" with the finance ministers deciding the details in November, according to the draft euro zone summit statement attained by Reuters.