MercoPress. South Atlantic News Agency

Euro banks holders of Greek debt told to prepare for a further ‘shave’

Juncker said that changes have occurred since the 21 July agreement

European finance ministers are considering making banks take bigger losses on Greek debt and have postponed a vital aid payment to Athens until mid-November, setting up a crunch point in the Euro zone's sovereign debt crisis.

Greek Finance Minister Evangelos Venizelos said the country had enough cash to cope until then and insisted that Euro zone ministers were not preparing for a Greek default, despite the ominous delay.

“There is no discussion of default,” Venizelos told a news conference on returning to Athens today.

Bank shares took a sharp tumble, leading a broader stock market retreat, after the 17 finance ministers, meeting in Luxembourg, called for a review of a July 21 debt swap agreement with private holders of Greek bonds.

The Euro hit a nine-month low against the dollar and a 10-year low against the Yen. Investors sought refuge in German government bonds, but the cost of insuring even those safe-haven Bunds against default hit another record.

Investor confidence was also hit by deepening trouble at Franco-Belgian bank Dexia, a municipal lender with big holdings of Greek and other peripheral Euro zone debt, whose shares plunged by more than 20% Tuesday after losing 10% Monday.

The French and Belgian Finance ministers said in a joint statement that Paris and Brussels and their central banks would take all necessary measures to safeguard Dexia account holders and creditors.

Jean-Claude Juncker, chairman of the 17-nation Euro group, said ministers were reassessing the extent of private sector involvement in a planned 109 billion Euro second rescue package for Greece which may now prove insufficient after Athens admitted it would miss key deficit targets.

Under the July deal, private creditors agreed to a 21% write-down on their Greek holdings via a plan to lighten and stretch the debt burden, with Euro zone governments funding credit enhancements to attract voluntary participation. Now that Greece's economic growth and deficit situation has worsened, that deal needed to be reviewed, Juncker said.

”As far as the PSI (private sector involvement) is concerned, we have to take into account the fact that we have experienced changes since the decisions we took on the July 21, so we are considering technical revisions, so yes,“ Juncker told reporters. He declined to elaborate.

France, whose shaky banks stand to lose most from a Greek default, urged all sides to stick to the initial deal. ”We have the July 21 agreement. We have to implement it; we have to keep working on it. Today Greece needs to make an effort, needs to keep moving” government spokeswoman Valerie Pecresse said.