Eurozone leaders expected to drop bank tax to fund Greek bailout

The decision follows talks held last night in Berlin between German Chancellor Angela Merkel and French President Nicolas Sarkozy, when they said they had struck a deal on a new package for Athens, but not releasing any details.

European Central Bank President Jean-Claude Trichet, who had also met Merkel and Sarkozy, agreed with that position, while senior diplomatic sources have suggested that the controversial bank tax to support the bailout fund has been dropped.

The Maltese government had objected to this proposal and viewed it as detrimental to the eurozone. “It was not fair that banks who had nothing to do with the crisis were made to shoulder the cost like this,” finance minister Tonio Fenech told Parliament earlier this week.

Malta has so far transferred €39.8 million in loans to Greece under the EU/IMF aid package, Finance Minister Tonio Fenech told parliament. Malta will be giving Greece a total of €74.5m over three years.

Prime Minister Lawrence Gonzi is attending today’s emergency meeting in Brussels for eurozone leaders over the debt crisis.

European banks quickly criticised the tax proposal when it emerged this week, saying it was indiscriminate in that it would tax all banks, even those not exposed to Greece.

They said they would challenge the proposal in the courts if it was enacted.

German and French banks, including Deutsche and BNP, are among the most exposed to Greek sovereign debt.

While very few details of the Franco-German deal struck last night have been revealed, EU sources said it would involve private sector involvement and would not cause either a default or selective default of Greek debt, a red line for the ECB.

A buyback of Greek debt is the only form of private sector involvement in the second Greek bailout that has a chance of not triggering a downgrade to a selective default rating of Greek debt, diplomats have been suggesting.