'Imminent' Greek default is manageable: Citi (by Steve Goldstein)

WASHINGTON (MarketWatch) -- A Greek sovereign default involving deep restructuring appears imminent, but the risk to financial stability is manageable, according to Citi economists Willem Buiter and Ebrahim Rahbari in a note published Wednesday. The economists say parallels with Lehman Brothers' default are misplaced -- Lehman's balance sheet was larger and much more complex, and the credit event was accompanied by the Washington Mutual default, American International Group rescue and the initial Congressional rejection of the Troubled Asset Relief Program. The economists further argued that not triggering credit-default payments on Greece in the case of a deep restructuring would be more damaging than triggering them. "Avoiding triggering CDS in the Greek case would likely be more damaging, as it would disqualify an entire asset class and further erode policymaker credibility," they wrote.

Euro pares losses on news reports ( 5_YEAR 10_YEAR TBT TLT BND AGG 2_YEAR EURUSD DXY UUP UDN FXE FXY USDJPY ) (by Deborah Levine)

NEW YORK (MarketWatch) -- The euro pared its decline against the dollar Wednesday amid a handful of media reports ahead of the official end of a European Union summit in Brussels. Reports included a repeat that China is willing to invest in Europe's bailout fund and analysts noted that details about the size of the bailout fund may not be forthcoming until next month. The euro (cur_eurusd) traded at $1.3892, up from a low of $1.3798 but down compared to $1.3921 in North American trade late Tuesday. The dollar index (dxy) , which measures the U.S. unit against a basket of six major currencies, rose to 76.191, of its highs but up from 76.154 on Tuesday.

EU leaders offer no bank recapitalization figure (by William L. Watts)

FRANKFURT (MarketWatch) -- A joint statement by European Union leaders following a summit meeting in Brussels produced no figure for bank recapitalization requirements but said there was broad agreement on requiring a "significantly higher" 9% tier 1 capital ratio. Polish Finance Minister Jacek Rostowski told reporters there would be no figure announced on the level of writedowns banks will take on Greek government debt. News reports Wednesday said talks between European officials and banks were deadlocked over the issue of writedowns. Polish Prime Minister Donald Tusk said EU leaders were near political agreement on a plan for addressing the euro-zone debt crisis. A meeting of euro-zone leaders was set to get under way after the larger gathering of EU heads of state.

EU calls for medium-term bank debt guarantees (by William L. Watts)

FRANKFURT (MarketWatch) -- European Union leaders on Wednesday called for the creation of medium-term debt guarantees in order to avoid a credit crunch. In the joint statement issued after a meeting of all 27 EU leaders in Brussels, the heads of state said measures for restoring confidence in the banking sector are "urgently needed." The statement said guarantees "on bank liabilities would be required to provide more direct support for banks in accessing term funding (short-term funding being available at the ECB and relevant national central banks), where appropriate. This is also an essential part of the strategy to limit deleveraging actions." A repeat of 2008, when national governemnts set up liquidity programs, may not be adequate under current market conditions, the statement said. The EU leaders urged a "truly coordinated" approach, encouraging the European Commission to work with the European Banking Authority, European Central Bank and other bodies.

Finance ministers to finalize bank recap plans: EU (by William L. Watt)

FRANKFURT (MarketWatch) -- European Union finance ministers will finalize details of a bank-recapitalization plan outlined by EU leaders on Wednesday, European Council President Herman Van Rompuy said in a statement. EU leaders agreed to require banks to raise their Tier 1 capital ratio to 9% by June 2012, but offered no estimate of the size of the capital raising such a requirement would entail. Euro-zone finance ministers are meeting in an effort to finalize other components of a plan to address the euro-zone debt crisis. EU finance ministers "will finalize the work and adopt the necessary follow up measures," Van Rompuy said.

EU to leverage EFSF to 1 trillion euros: report (by MarketWatch)

FRANKFURT (MarketWatch) -- Euro-zone leaders plan to leverage the region's 440 billion euro ($609 billion) bailout fund to give it 1 trillion euros in firepower, Reuters reported Wednesday. The fund, known as the European Financial Stability Facility, has between 250 billion to 275 billion euros still available after bailouts for Greece, Ireland and Portugal. The plan is to leverage the fund by around four times through a special investment vehicle and a debt-insurance plan, the report said. Euro-zone ministers are meeting Wednesday night in an effort to complete a wide-ranging plan to address the euro-zone's debt crisis. News reports said French President Nicolas Sarkozy would call Chinese President Hu Jintao to urge China's participation in the investment vehicle.