BRUSSELS (Reuters) – Euro zone officials played down reports on Monday of emerging plans to halve Greece’s debts and recapitalize European banks to cope with the fallout, stressing that no such scheme is yet on the table.

Europe came under fierce pressure from the United States and other major economies at weekend talks in Washington to take swift, decisive action to stop the Greek debt crisis engulfing bigger euro zone states and derailing world economic recovery.

But officials said media reports that planning was already in place for a 50 percent writedown in Greek debt and a vast increase in the euro zone rescue fund, the EFSF, were highly premature.

“There is no change to the framework we are working on,” said a euro zone official who is involved in decision-making on financial assistance to Greece, Ireland and Portugal.

“All this talk of a specific haircut for Greece or an enlargement of the EFSF, it is all just speculation. We are not working along those lines,” said the official.

German Chancellor Angela Merkel, struggling to convince her fractious center-right coalition to back a strengthening of the EFSF in a crucial vote on Thursday, said on Sunday that letting Greece default would destroy investor confidence in the euro zone.

Diplomats said any talk of a fallback plan for Greece that would raise the cost to German taxpayers could only make her task more difficult in parliament this week.

BRUSSELS (Reuters) – Each time, the story is the same: Greece makes budget commitments, its creditors warn it is in danger of missing them, Athens promises a renewed effort, and just in time, everyone agrees the targets were met.

Over the 17 months since Greece was granted 110 billion euros of emergency loans by the IMF and European Union, five loan tranches have been paid out despite Athens’ patchy success in delivering on its goals.

The 6th tranche is due in mid-October and again looks likely to be paid, if only because the impact on the euro zone and global economy is too dangerously unquantifiable if not. Greece is falling far short on objectives but will again get its money.

The question is how long the charade of the European Commission, European Central Bank and IMF turning a half-blind eye to Athens’ backsliding can go on before the troika’s inspectors decide enough is enough — that compromising on their integrity to allow Greece to stumble on just won’t do.

There is already a clear sense in Brussels and beyond that the 7th tranche may be a tranche too far, that the gap between EU expectation and the reality in Greece will be too great by then for the payment to be made in good conscience.

That would mean Athens pushed to default, unless changes to the euro zone bailout fund, set to be finalised in the next month, make it possible to stave off the threat for several months longer by providing quick funds to Greece.

Such changes — and the possibility of euro zone states finalising their second, 109 billion euro bailout for Athens — may provide a lifeline, but Greece can’t rely on them happening.

BRUSSELS (Reuters) – Each time, the story is the same: Greece makes budget commitments, its creditors warn it is in danger of missing them, Athens promises a renewed effort, and just in time, everyone agrees the targets were met.

Over the 17 months since Greece was granted 110 billion euros of emergency loans by the IMF and European Union, five loan tranches have been paid out despite Athens’ patchy success in delivering on its goals.

The 6th tranche is due in mid-October and again looks likely to be paid, if only because the impact on the euro zone and global economy is too dangerously unquantifiable if not. Greece is falling far short on objectives but will again get its money.

The question is how long the charade of the European Commission, European Central Bank and IMF turning a half-blind eye to Athens’ backsliding can go on before the troika’s inspectors decide enough is enough — that compromising on their integrity to allow Greece to stumble on just won’t do.

There is already a clear sense in Brussels and beyond that the 7th tranche may be a tranche too far, that the gap between EU expectation and the reality in Greece will be too great by then for the payment to be made in good conscience.

That would mean Athens pushed to default, unless changes to the euro zone bailout fund, set to be finalized in the next month, make it possible to stave off the threat for several months longer by providing quick funds to Greece.

Such changes — and the possibility of euro zone states finalizing their second, 109 billion euro bailout for Athens — may provide a lifeline, but Greece can’t rely on them happening.

BRUSSELS (Reuters) – Euro zone leaders may reject the notion of a “Greek default”. But private sector economists and political analysts are largely agreed that it is only a matter of time.

The questions that raises — and they are vast — include: what would the impact on European banks be? How much capital would need to be injected into the system? How would that be carried out? And would it stop contagion beyond Greece?

That Greece’s debt dynamics are unsustainable is no longer seriously in question. With a debt-to-GDP ratio of around 160 percent and climbing, the burden on the state is close to unbearable. Further EU/IMF emergency aid is not guaranteed. Some analysts now expect a default as early as November or December.

Guntram Wolff, the deputy director of Bruegel, a think-tank whose analysis frequently informs EU policymaking, believes Greece’s debt ratio needs to be reduced by around 50 percentage points if Athens is to approach long-term debt sustainability.

That would require writing down around 110-120 billion euros (96-105 billion pounds) of outstanding loans, a fundamental restructuring that would be forced onto private sector creditors, constituting a default and bottom-line losses for many European and U.S. banks.

“There will have to be a recapitalising of banks, especially in Greece but also in other euro zone economies’ banking systems,” said Wolff, who believes a Greek default could be on the cards during November.

“You would have to exempt the IMF loans and to some extent the loans by EU governments to Greece, and you would have to force it on the private sector,” he said of the restructuring.

BRUSSELS (Reuters) – Euro zone leaders may reject the notion of a “Greek default.” But private sector economists and political analysts are largely agreed that it is only a matter of time.

The questions that raises — and they are vast — include: what would the impact on European banks be? How much capital would need to be injected into the system? How would that be carried out? And would it stop contagion beyond Greece?

That Greece’s debt dynamics are unsustainable is no longer seriously in question. With a debt-to-GDP ratio of around 160 percent and climbing, the burden on the state is close to unbearable. Further EU/IMF emergency aid is not guaranteed. Some analysts now expect a default as early as November or December.

Guntram Wolff, the deputy director of Bruegel, a think-tank whose analysis frequently informs EU policymaking, believes Greece’s debt ratio needs to be reduced by around 50 percentage points if Athens is to approach long-term debt sustainability.

That would require writing down around 110-120 billion euros of outstanding loans, a fundamental restructuring that would be forced onto private sector creditors, constituting a default and bottom-line losses for many European and U.S. banks.

“There will have to be a recapitalizing of banks, especially in Greece but also in other euro zone economies’ banking systems,” said Wolff, who believes a Greek default could be on the cards during November.

“You would have to exempt the IMF loans and to some extent the loans by EU governments to Greece, and you would have to force it on the private sector,” he said of the restructuring.

BRUSSELS (Reuters) – Barring further political hiccups, the euro zone’s bailout fund will take over the task of buying distressed euro zone debt by the end of October, bringing with it new risks for governments struggling with rising borrowing costs.

The European Central Bank will be happy to hand over responsibility for a bond-buying program that it has struggled to square with its central goal of keeping inflation in check and that has prompted two of its policymakers to quit.

Yet even the ECB, with considerable market credibility and market know-how, has struggled to keep the yields of troubled euro zone debtors such as Italy and Spain in check.

It remains unclear how the EFSF, which employs about a dozen people in a small office in Luxembourg, will carry out its mandate, how much flexibility it will have to buy distressed bonds, how it will deal with its limited capacity and what disclosure rules it will follow.

So far the fund has worked closely with Germany’s debt management office to issue the small quantity of bonds it has sold so far and officials have also pointed to expertise available from the European Investment Bank and the ECB.

A Reuters poll earlier this month showed most analysts predict the ECB will remain involved in some capacity.

But the fund, set up in May 2010 after the first bailout of Greece, has not cleared up any of those issues publicly and as a result concerns remain about how capable it will be of handling secondary-bond-market buying at a highly volatile time.

PARIS/BRUSSELS, Sept 14 (Reuters) – Moody’s cut the credit ratings of two French banks on Wednesday because of their exposure to Greece’s debt, highlighting growing risks to Europe’s financial sector from a deepening euro zone sovereign debt crisis.

But the euro and European stocks were lifted by an announcement by the head of the European Commission that it would soon present options for issuing a common euro zone bond, despite huge political hurdles especially in Germany.

The ratings agency’s one-notch downgrade of Societe Generale and Credit Agricole came hours before the leaders of Greece, France and Germany were to hold a video conference on measures to head off a potential Greek default, which has prompted rising global alarm.

China added its voice to U.S. concerns over Europe’s apparent inability to stop debt contagion from spreading, while Indian and Brazilian officials said major emerging economies were discussing increasing their euro sovereign holdings.

Moody’s kept BNP Paribas on review for a ratings downgrade saying the bank’s profitability and capital base provided an adequate cushion to support its Greek, Portuguese and Irish exposure.

France’s biggest bank announced a plan to sell 70 billion euros in assets to help ease investor fears about leverage and funding that hit its two main rivals. Shares in all three big French banks fell in early trading.

With senior EU and IMF inspectors due in Athens on Monday to check Greece’s faltering compliance with its bailout plan, Chancellor Angela Merkel and President Nicolas Sarkozy were set to press Prime Minister George Papandreou to enforce harsh austerity measures to meet fiscal targets.

BRUSSELS (Reuters) – Senior EU officials are speaking privately about a dangerous new phase in the two-year-old euro zone crisis. Greece – the spark for the conflagration – is close to intractable and Italy, the region’s third largest economy and biggest bond market, is cause of grave concern.

Dutch Prime Minister Mark Rutte provided perhaps the clearest indication yet that Greece’s 10-year euro membership might not be forever, outlining on Wednesday a plan under which a member state could leave the currency bloc if it consistently and repeatedly ignored budget deficit and other obligations.

“Countries which are not prepared to be placed under administratorship can choose to use the possibility to leave the euro zone,” he and his finance and economics ministers wrote in a proposal sent to the Dutch parliament, although it did not mention Greece or any other member state by name.

In whispers, some officials are giving a stark assessment, even if they do not yet represent the mainstream of EU thinking, where many still talk about a solution being found.

“I think the euro zone is on the verge of collapse,” said one senior official involved in analysing solutions to the crisis.

“Italy is the only country that matters now. Forget about Greece. Even if you could find a way to get Greece out of the euro zone, it wouldn’t resolve the Italian problem and it wouldn’t resolve the debt crisis.”

From the European Commission’s point of view, a country leaving the currency bloc is not only not being debated, it is not even possible, with the statutes that govern membership making no provision for members to leave the club.

BRUSSELS (Reuters) – Senior EU officials are speaking privately about a dangerous new phase in the two-year-old euro zone crisis. Greece – the spark for the conflagration – is close to intractable and Italy, the region’s third largest economy and biggest bond market, is cause of grave concern.

Dutch Prime Minister Mark Rutte provided perhaps the clearest indication yet that Greece’s 10-year euro membership might not be forever, outlining on Wednesday a plan under which a member state could leave the currency bloc if it consistently and repeatedly ignored budget deficit and other obligations.

“Countries which are not prepared to be placed under administratorship can choose to use the possibility to leave the euro zone,” he and his finance and economics ministers wrote in a proposal sent to the Dutch parliament, although it did not mention Greece or any other member state by name.

In whispers, some officials are giving a stark assessment, even if they do not yet represent the mainstream of EU thinking, where many still talk about a solution being found.

“I think the euro zone is on the verge of collapse,” said one senior official involved in analyzing solutions to the crisis.

“Italy is the only country that matters now. Forget about Greece. Even if you could find a way to get Greece out of the euro zone, it wouldn’t resolve the Italian problem and it wouldn’t resolve the debt crisis.”

From the European Commission’s point of view, a country leaving the currency bloc is not only not being debated, it is not even possible, with the statutes that govern membership making no provision for members to leave the club.

BRUSSELS (Reuters) – A former senior U.S. army officer who helped lead the hunt for Saddam Hussein believes Muammar Gaddafi will be caught as long as those pursuing him use local intelligence and zero in on his closest bodyguards.

Speaking before news emerged that a convoy of Libyan army vehicles had crossed into Niger carrying senior pro-Gaddafi figures, retired Lieutenant-Colonel Steve Russell said Gaddafi had traits similar to Saddam and other ego-driven autocrats that made him likely to rely on a small network of ultra-loyalists.

In hunting down Saddam in 2003 — he was captured eight months after the fall of Baghdad, hiding in a hole near his hometown of Tikrit — Russell relied on a mixture of local intelligence, special forces surveillance and psychological warfare to turn the local population against the deposed leader.

“We thought that if we could find the bodyguards, they may be good at protecting him, but not so good at protecting themselves. We knew that if we could find them and track them, they would probably lead us to Saddam,” he said.

From June 2003, the U.S. military thought it had a pretty good idea that Saddam was hiding in the area around Tikrit and his nearby birthplace of al-Ouja, and set about pinpointing his bodyguards, closest family and relatives in the area.

From creating a fake insurgent group to draw away Saddam’s religious supporters, to putting up posters of Saddam dressed as a woman or Elvis Presley around Tikrit to make fun of him, Russell and his unit tried to agitate the local population into giving him up while goading his backers into showing themselves.

“We would get tips from locals constantly saying ‘they’re here, we’re seeing them’, referring to Saddam’s bodyguards, so we knew he had to be around even if we didn’t know exactly where he was,” he said. “It was a matter of time.”