BERLIN, Sept 27 German and French government advisers urged in an article on Tuesday that Greece be allowed to write off around 50 percent of its debt and called for more support for banks with large holdings of Greek bonds.
Decisions made to resolve Greece's debt crisis at the July 21 European summit were not sufficient, a group including Germany's "wisemen" panel of economic advisers, an advisor to the French government, an economist on the ECB Shadow Council and the editor of "IMF Economic Review" wrote in the Financial Times Deutschland.
"Creditors should renounce around a half of the nominal value of their Greek bonds," the article said. "Then it would be possible for Greece to bring its debt levels down to a sustainable level through its own efforts."
Greece is on the front line of the euro zone debt crisis that has engulfed Ireland and Portugal and now threatens Italy, Spain and some of Europe's biggest banks, risking plunging the West back into recession.
The July 21 agreements provided for a 21 percent haircut on Greek debt through a bond swap deal that would see banks give Athens longer to pay off its debt. Many financial market players are convinced, however, that a larger-scale default is all but inevitable.
The country adopted yet more austerity measures last week to secure a bailout installment crucial to avoid running out of money next month, as the IMF warned that Europe's sovereign debt crisis risks tearing a giant hole in banks' capital.
The group of advisors wants banks to be able to exchange Greek bonds for notes issued by the euro zone safety mechanism (EFSF) to guarantee the stability of the restructuring process.
"Furthermore those banks with large holdings of Greek sovereign bonds need special support," they wrote. "This is in particular the case for Greek banks."
Greek bank shares fell by more than six percent to a 19-year low on Monday on media reports of a larger than planned haircut.
The so-called German wisemen had already separately called for a 50 percent haircut.
"It is indispensable to improve cooperation in the euro zone and develop possibilities to break the vicious circle of bank and debt crisis, and guarantee competitiveness and growth," the group of German and French advisors wrote.
"Until then we should be agreed on putting out the fire as quickly as possible."
German Chancellor Angela Merkel and Greek Prime Minister George Papandreou will discuss how Athens is implementing reforms at a meeting in Berlin on Tuesday evening. (Reporting By Sarah Marsh)