By Jan Strupczewski, John O'Donnell and Luke Baker

BRUSSELS -- European policymakers are working on "last chance" options to bring Greece's debts down and keep it in the euro zone, with the ECB and national central banks looking at taking significant losses on the value of their bond holdings, officials said.

Private creditors have already suffered big writedowns on their Greek bonds under a second bailout for Athens sealed in February, but this was not enough to put the country back on the path to solvency and a further restructuring is on the cards.

The latest aim is to reduce Greece's debts by a further 70 billion to 100 billion euros, several senior euro zone officials familiar with the discussions told Reuters, cutting its debts to a more manageable 100 percent of annual economic output.

This would require the European Central Bank and national central banks to take losses on their holdings of Greek government bonds, and could also involve national governments also accepting losses.

The favoured option is for the ECB and national central banks to carry the cost, but that could mean that some banks and the ECB itself having to be recapitalised, the officials said.

The ECB declined comment on Friday.

Planning is in the early stages and no formal discussions have yet taken place. But there is an awareness that Greece is way off-track in improving its finances and that aggressive action is needed to keep the country inside the euro zone.

Officials described a further restructuring of Greek debt as a last chance to restore the country to solvency, with the agreed goal of cutting its debt to 120 percent of GDP by 2020 already seen as far beyond reach.

The International Monetary Fund, a party to the two rescue packages Greece has so far received, is in favour of overhauling Athens's official-sector loans -- a process policymakers refer to as "OSI" or official-sector involvement.

"If I were to assign a percentage chance to OSI in Greece happening, I would say 70 percent," one euro zone official involved in the deliberations told Reuters.

30 Percent Option

One of the options being worked on would involve the ECB and national central banks in the Eurosystem writing down the value of the Greek government bonds they hold by 30 percent, under a process that bankers refer to as a "haircut."

Total outstanding official-sector credits to Greece, which also includes bilateral loans extended to Greece by eurozone governments, is about 220-230 billion euros.

A 30 percent writedown would therefore amount to slightly more than 70 billion euros, one official said. Another put the figure at between 70 and 100 billion euros, depending on how the process is carried out.

"It is very complicated and the precise method has not been decided yet because it is very early days," one source said.

Officials considered writing down the value of official-sector loans to Greece last year when they were putting together the second EU/IMF rescue program, which focused on the restructuring of Greece's private-sector debt.

But OSI was deemed too politically sensitive at the time and was pushed into the background. One official described that as a missed opportunity and suggested it should not be repeated.

"The big mistake was that we didn't manage to haircut the Greek government bonds that were in the investment portfolios of the national central banks. That was really, really stupid," the official told Reuters.

Central Bank Recapitalization

Politically, it may be easier for policymakers to get the ECB and national central banks to take a hit on their bond holdings, rather than euro zone governments which would mean that taxpayers suffered direct losses.

However, the process would still come with complications. First of all, several national central banks would probably have to be recapitalised, officials said.

Two officials indicated that the French, Maltese and Cypriot central banks were most exposed to Greek government debt and would probably need a capital injection. Two other officials said the ECB could also need balance sheet support.

"The preference is that the OSI would happen on ECB books," one of the sources said. "The ECB would have to be recapitalised as a result, but that would be politically much more acceptable than a loss for taxpayers."

Another of the sources said that while the ECB held reserves to cover such writedowns, a restructuring of Greece's debt could require "action to protect the balance sheet further".

Asked about the exposure of specific national central banks to Greece, one of the four officials Reuters spoke to said: "France has a huge amount. Very large."

Asked whether that would not mean a recapitalisation of some central banks, he replied: "Yes, but so what?"

The Cypriot and Maltese central banks did not immediately respond to queries. The Bank of France referred calls to the ECB.

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Dark Matter 45

Oh, the problems that come with running out of other people's money.

July 30 2012 at 8:54 AM Report abuse -3 rate up rate down Reply

REVELATION 13-3 And I saw one of his heads as it were wounded to death;and his deadly wound was healed:and all the world wondered after the beast.

July 29 2012 at 4:13 AM Report abuse +4 rate up rate down Reply

Why is it that workers are the scapegoats for programs that should have never been allowed to come into play. Many of you talk about Social Security and Medicare and call them entitlements and yes they are. These people are entitled because they paid into it and still do, even after retirement. Now the real cuts ought to be applied to those on Medicaid and the universal EBT Card. Medicare is paid for by the workers and Medicaid is paid for by taxing the hell out of those that are paying for their own Medicare, and get taxed to pay for the useless eaters that don't work and refuse to do so. Illegal Immigrants are another problem, how can you be illegal and get Americans benefits? Does criminal come to mind? America under the Obama Administration is fast becoming another Greece and Europe. America doesn't have a tax problem, it has a spending problem.

July 28 2012 at 3:04 PM Report abuse +3 rate up rate down Reply

Europe is playing the end game in its losing position in the continent’s chess match. It can’t dictate fiscal responsibility to sovereign states and that’s a stalemate that won’t go away regardless of the endless talks. So, there’s no way out for Europe except to print money despite the fact the Greek election results have allayed fears of the country’s imminent exit from the euro zone; something that will not happen until such time as the entire system collapses. For now, Europe has taken a mere monetary respite. In the end, I believe that the European Union’s dream will turn into a nightmare. For now, Greece must be kept on life support because of the very real threat of economic contagion. The big picture in Europe will soon focus on Spain, Italy and France. Al Holtje ... comment here

July 28 2012 at 1:23 PM Report abuse +2 rate up rate down Reply

You might think that debt is real bad its bad but many states in america are in as much triouble if not more/ Many people don't think its as bad in america but their so wrong . We spend more and more and more and we can not afford any of it .Our money is even worh 20 to 25 % less than the Euro even with all their problems. Its most likely that many of our cities will fail in the next year which means the stattes won't be far behind My state is in debt to the tune of around $360,000 per person How long before it all breaks without cutting pays and perks Programs in the budgets that are not basic needs Not remove all but we all know of waste

July 27 2012 at 5:23 PM Report abuse -1 rate up rate down Reply

More money chasing bad money. Why reward bad management and government.

July 27 2012 at 3:55 PM Report abuse +2 rate up rate down Reply

Are there any lessons to be learned here to apply to growing deficits being accumulated by individual states in the US? Alexander Krzyston

July 27 2012 at 3:53 PM Report abuse rate up rate down Reply

Look how much that has already been poured in. It takes 100 billion just to get it back to norm. But that does not insure the problem is solved. Greek will keep taking money until the others stop giving it to them. More money is only good money chasing of these days, they will figure this out.

July 27 2012 at 3:45 PM Report abuse +1 rate up rate down Reply

100 billion?......SO WHAT???....The Eurozone economy is a 10 TRILLION economy (each and every year and growing). 100 billion Euros although it's propagandized to sound like 'a lot' to us regular people suffering through the 'Great Recession' .....Is ONE PEANUT to the rich guys running the economies.

July 27 2012 at 2:51 PM Report abuse +1 rate up rate down Reply
1 reply to byjack007's comment

LM@O and from what PROPaganda source does this stuff come from ?
IF THE EURO_nils HAVE a 10trillion eurO economy---then what's their CRISIS about ?
hell,they can outbid soros and BAIL US ALL OUT.

July 27 2012 at 5:20 PM Report abuse -4 rate up rate down Reply

OK---------i mentioned eric_my-people_holder and the IMF back a while ago when someone was bringing up the IMF and asked that anyone interested to look it up
but here is the beginning of it with CORZINES vaporized billion-

it'a ALL OUT HERE and NEVER WITHIN huffie_ho,aol,cBs etc.
they decide what YOU KNOW.

July 27 2012 at 2:42 PM Report abuse -4 rate up rate down Reply