Struggle expected over EU bailout plan

The deal that emerged from a two-day summit of EU leaders in Brussels yesterday is vague on how private creditors such as banks and hedge funds, and not just taxpayers, would share the cost of financial rescues such as the one that pulled Greece from the edge of bankruptcy in May.

Forcing private bondholders to pay for some of the consequences of risky lending was a key demand from Germany, which was the biggest contributor both to a $153.40 billion emergency loan for Greece and a $613.58 billion stability fund for the wider eurozone.

Other governments — backed by the president of the European Central Bank — fear that threatening bondholders with debt restructuring would send up funding costs for countries like Greece, Portugal, or Ireland and again imperil the stability of the euro.

Both the emergency loan and the stability fund run out on June 30, 2013. By then, Greece’s debts will probably stand at 150 percent of gross domestic product, a level that many economists think is unsustainable.

But leaders left it to the European Commission — the EU’s executive — and a task force around EU President Herman Van Rompuy to work out the details of how such a mechanism should function and what role, if any, should be played by the International Monetary Fund, the Washington, D.C.-based international organization that helped in the Greek bailout.