Eurozone ministers approve 8bn euro Greek bailout aid

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French Finance Minister Francois Baroin (L) and German Finance Minister Wolfgang Schaueble
Image caption,
The French and German finance ministers greeted each other but their countries remain divided

Eurozone finance ministers have approved the next tranche of Greek bailout loans, potentially saving the country from a disastrous default.

The 8bn-euro ($11bn; £7bn) loan must still be signed off by the International Monetary Fund.

Once this is done, Athens should get the funds in mid-November, officials said on Friday.

Ministers, who have begun several days of talks, also said they were working on a second rescue package for Greece.

The new plan for the debt-ridden country would include fresh aid money and contributions from the private sector.

However, no further details on the new package were disclosed.

The finance ministers are meeting in Brussels for negotiations aimed at resolving the eurozone's debt crisis and bolstering the region's banking sector.

On Saturday, ministers from all 27 EU countries will join the talks. EU leaders will also gather on Sunday, and have announced plans for an extra meeting on Wednesday.

But there have been widespread reports of deep divisions between France and Germany.

In particular, the two need to agree on how to increase the firepower of the eurozone's bailout fund, the European Financial Stability Facility (EFSF), from its current 440bn euros ($595bn; £383bn).

France has proposed turning the EFSF into a bank so that it could borrow from the European Central Bank (ECB), but Germany has refused to sanction such a move, arguing it would compromise the ECB's impartiality.

German Finance Minister Wolfgang Schaeuble reiterated this position as he arrived at the Brussels meeting.

"We have all taken note that it is clear, first, that we will stick to the agreed guarantees and that we will stick to the situation as it is in the treaty that the central bank is not available for state financing," he said.

The German government has also promised its taxpayers that its contribution will not go above 211bn euros so is looking for a way to increase the size of the fund without increasing the liabilities of German taxpayers.

Despite no apparent movement on the deadlock, markets were trading higher, with the leading indexes in London, Frankfurt and Berlin all up between 1.5% and 2.7%, while US markets also rose at the start.

'Collective action'

The finance ministers from the 17 countries that use the euro, known as the eurogroup, were hoping to thrash out differences on Friday ahead of the arrival of Europe's leaders on Saturday.

Jean-Claude Juncker, the chairman of the eurogroup and the prime minister of Luxembourg, said the delay to a deal portrayed a "disastrous" image of the eurozone to the rest of the world, adding that it was not necessarily just France and Germany that had differences of opinion.

A spokesperson for UK Prime Minister David Cameron said he had held a video conference with US President Barack Obama, German Chancellor Angela Merkel and French President Nicolas Sarkozy earlier on Friday.

"They all agreed on the urgent need for the eurozone to agree a comprehensive and sustainable solution to the eurozone financial crisis and Chancellor Merkel and President Sarkozy outlined the approach that was under discussion.

"They agreed to continue to consult closely ahead of the G20 summit in Cannes [in November] on collective international action to support global economic growth."

A deal on the euro had been expected to be signed on Sunday, but France and Germany said they would not be able to reach an agreement by then and announced that leaders would meet again on Wednesday.

Sunday's summit had already been delayed from 17-18 October because more time was needed to finalise a plan.

BBC business editor Robert Peston said he expects a deal to be announced to recapitalise Europe's banks on Saturday.

Greek losses

A second hurdle in the way of any rescue plan is that negotiations have not yet begun properly with private sector lenders to Greece on a further reduction of what the Greek government will repay them.

Banks have already agreed to take a 21% loss, or "haircut", on their loans to Greece but there is growing pressure for them to accept higher losses.

President Sarkozy has called for talks with the private sector.

Previous disagreements between France and Germany about the bailout plans have centred on how much the private sector would have to contribute to any package.

Germany has been leading the push for the private sector to take steeper losses, but France and the ECB fear that this would destabilise the banking sector and worsen market turmoil.

Meanwhile, the head of Germany's second biggest bank has said that Greece should declare itself insolvent and restructure its debt in order to restore calm to the markets.

"It has to become clear that states have only two options," Commerzbank chief executive Martin Blessing told the daily Bild.

"Either they service their debt as agreed or they declare insolvency with all the tough consequences. It is not enough to just take writedowns on bank balance sheets."