Eurozone paper points to bank tax to fund Greece

A tax on eurozone banks and cheaper, longer-dated official loans are the least risky way to provide extra funding for debt-stricken Greece, a confidential paper drafted ahead of a European summit showed on Tuesday.
With financial markets on edge two days before leaders of the 17-nation currency area hold a crucial meeting, other options that could trigger a selective or outright Greek default with far-reaching consequences remain on the table, the paper obtained by Reuters showed.
The European currency is facing the biggest crisis of its 12-year existence, with contagion threatening major economies such as Italy and Spain after three small members - Greece, Ireland and Portugal - needed financial rescues. Eurozone leaders will try to agree on a second rescue package for Greece and a strategy to halt contagion when they meet in Brussels on Thursday, after senior officials thrash out detailed proposals in talks on Wednesday.
French European Affairs Minister Jean Leonetti confirmed late on Monday that eurozone officials were eyeing a bank tax to raise extra money to help Greece, which needs a further 115 billion euros in funding by mid-2014 on top of a 110-billion-euro EU/IMF bailout agreed last year.
"It's one of the solutions we are looking at. It would have the advantage of not making us intervene directly with the banks and therefore potentially not triggering a default," he told reporters in Brussels.
A source familiar with the talks said a small levy on banks could raise 10 billion euros a year, yielding the 30 billion euros over three years targeted by Germany, which has led the drive for private sector involvement in a new Greek programme. A tax would appear to have the drawback of lumping together banks that have an exposure to Greece and those that do not, but the source said it could be structured so that the main burden fell on those with Greek holdings. He did not say how.
A banking source and a national government official said the inclusion of a tax proposal was aimed at pressuring banks and insurers into agreeing on an acceptable form of voluntary private sector involvement in supporting Greece. Talks on this led by the International Institute of Finance, a banking lobby, were continuing in Rome on Tuesday.
The options paper, dated July 16 but which officials said still reflects the wide open state of debate, showed that a tax on the financial sector was the only proposal deemed unlikely to cause a selective default. It identified three main options.
The document gave no figure but officials have said they are considering extending the loans to 30 years and cutting the interest rate to 3.5 percent from the original 5.5 percent, which was reduced to 4.5 percent in March.