BRUSSELS — Eurozone finance ministers agreed that banks should accept bigger losses on their Greek bonds but would not say Saturday how large the writedowns would be.
The move is a key step in helping Athens eventually dig out from underneath its debt burden. But asking banks to more significantly write down their Greek debt will raise concerns about their ability to withstand the losses. As a result, EU ministers meeting in Brussels are also expected to force the banks to raise billions in capital for their rainy-day funds.
Both measures are critical to solving Europe's debt crisis, which is now threatening to engulf larger economies like Italy and Spain and is blamed for dampening growth across Europe and even the world.
"The crisis in the eurozone is doing real damage to many of the European economies, including Britain," George Osborne, Britain's chancellor of the exchequer, said as he headed into Saturday's meeting. "We have had enough of short-term measures, sticking plasters that get us through the next few weeks."
European leaders had promised just such a solution would come from a summit on Sunday, but they have now scheduled another one for Wednesday. Still, this weekend, they appeared to be making progress.
And a not a moment too soon: A new report from Greece's international debt inspectors said Athens won't be able to raise money on financial markets until 2021 unless it is allowed to write off more of its debt load.
In July, banks had tentatively agreed to take a loss of about 21 percent on Greek bonds. But if that percentage doesn't increase, the inspectors said the country will need as much as €252 billion ($350 billion) in new loans through 2020, according to the report, which was given to the ministers on Friday and seen by The Associated Press.
To avoid having to pour more money into Greece, finance ministers from the 17 countries that use the euro have agreed that the banks need to take on more losses.Comment on this story
"Yesterday we agreed that we need a substantial increase in the contribution from the banks," said Jean-Claude Juncker, Luxembourg's prime minister who also chairs the meetings of eurozone finance ministers.
Austrian Finance Minister Maria Fekter said the eurozone's chief negotiator with banks had been asked to restart those discussions.
Juncker would not say how big the contribution would be, but Germany is pushing to have Greece's private creditors take losses of 50 percent to 60 percent
According to the report, Greece's debt will peak at 186 percent of GDP in 2013 and only decline to 152 percent by the end of 2020. Germany wants that brought down to 120 percent of GDP.