BRUSSELS (AP) - Eurozone finance ministers said Saturday that they have agreed that banks should accept substantially bigger losses on their Greek bonds, with a new report suggesting that writedowns of up to 60 percent may be necessary.
The report from Greece's international debt inspectors, which formed the basis for discussions at the finance ministers' meeting Friday, says that in order to keep rescue loans from the eurozone to the (euro) 109 billion ($150 billion) foreseen under a second bailout deal tentatively reached in July, Greece's debt would have to be cut by 60 percent.
Even that would leave the country's debts still at 110 percent of economic output in 2020.
"Yesterday we agreed that we need a substantial increase in the contribution from the banks," said Jean-Claude Juncker, Luxembourg's prime minister who also chairs the meetings of eurozone finance ministers. That means the July deal, under which banks would have taken writedowns on their Greek bondholdings of about 21 percent, is definitively off the table.
Austria's Finance Minister Maria Fekter told journalists that the eurozone's chief negotiator Vittorio Grilli had been asked to restart negotiations with banks.
Greek Finance Minister Evangelos Venizelos confirmed as he arrived for the meeting that leaders were looking for banks to write down more than the July agreement envisaged. "But in any case, Greece is not a central problem for the eurozone," he said. "Now the point is to take a more general and more constructive decision for eurozone as a whole."
The report did not make policy recommendations, and in fact the European Central Bank opposes cutting Greece's debts further. But finance ministers are clearly paying close attention to the document.
Another scenario showed that if Greece's debts are cut by 50 percent, the country would need (euro) 114 billion ($157 billion), on top of the July package.
The agreement to push for much bigger losses is a key step in helping Athens eventually dig out from underneath its debt burden.
But asking banks to more significantly write down their Greek debt will raise concerns about their ability to withstand the losses as well as the ensuing turmoil on financial market.
As a result, the finance chiefs from the 27 EU countries, meeting Saturday in Brussels, are also expected to force banks across the continent to raise billions in capital for their rainy-day funds.
Both measures are critical to solving Europe's debt crisis, which is now threatening to engulf larger economies like Italy and Spain and is blamed for dampening growth across Europe and even the world.
"The crisis in the eurozone is doing real damage to many of the European economies, including Britain," George Osborne, Britain's chancellor of the exchequer, said as he headed into Saturday's meeting. "We have had enough of short-term measures, sticking plasters that get us through the next few weeks."
European leaders had promised a solution would come from a summit on Sunday - following the two days of finance ministers' meetings - but they have now scheduled another get-together of EU leaders for Wednesday. Still, this weekend, they appeared to be making progress.
Pressure on finance ministers was high, after the report from Greece's debt inspectors - the European Commission, the European Central Bank and the International Monetary Fund - showed that the country's economic situation had deteriorated dramatically since the summer.
If the July deal with banks were to go ahead, the report said, Greece's debt would peak at a massive 186 percent of economic output in 2013 and only decline to 152 percent by the end of 2020.
That would prevent Greece from raising money on the markets until 2021 and require the eurozone and the IMF to put in an extra (euro) 252 billion ($350 billion) in new loans through 2020, according to the report, which was given to the ministers on Friday and seen by The Associated Press.
Greece has already been relying on (euro) 110 billion in international emergency loans since May last year.
While the ministers were making progress on reducing Greece's debts, an arguably bigger problem remained intractable: boosting the firepower of the eurozone's (euro) 440 billion ($600 billion) bailout fund to keep the crisis from spreading.
Increasing the effectiveness of the European Financial Stability Facility is meant to help prevent larger countries like Italy and Spain from being unable to afford to borrow money from markets - which is exactly what happened to Greece, Portugal and Ireland and why those countries needed bailouts.
But Germany and France still disagree over how to do that and failed to make much progress on that front Friday night. German Chancellor Angela Merkel and French President Nicolas Sarkozy are set to meet Saturday evening in the hopes of moving toward a deal.
In a sign that the pressure is rising on leaders to come up with an overarching solution, the finance ministers from the 17 countries that use the euro also said they'll regroup Saturday afternoon.
Elena Becatoros contributed to this report from Brussels.