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19th Nov 2018

Banks, Europe haggle over scale of bond haircut

  • European banks have received an estimated €4.6 trillion in support from public coffers since the start of the crisis (Photo: Images_of_Money)

The world’s banks have delivered what they are describing as a “significant” new offer on the scale of a haircut on their holdings of Greek sovereign debt, but no details have appeared since their earlier stance described by one EU diplomat as “playing hardball”.

The director of the Institute for International Finance (IIF), the trade association of the global financial sector - which is negotiating with EU officials over the scale of the writedown, said in a statement on Wednesday (26 October) afternoon: "A significant new offer was made by Mr. Charles Dallara, IIF managing director, on behalf of private investors in discussions in Brussels with European officials yesterday."

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No precise figures were released, however. It is understood that the IIF until now would not budge from a write-down percentage of 40 percent, while EU representatives have pressed for a cut of between 50 and 60 percent.

The IMF for its part has not ruled out a cut of up to 70 percent.

The banks have said that if European leaders insist on a higher figure, the 'voluntary' haircut would be viewed as being imposed and as such would categorise the move as a default.

"There are limits ... to what could be considered as voluntary to the investor base and to broader market participants," Dallara said on Tuesday, AFP reports.

"Any approach that is not based on co-operative discussions and involves unilateral actions would be tantamount to default."

Earlier on Wednesday, an EU official said there was anger at the banking association’s position, given the scale of the public funds that have been committed to saving Europe’s financial institutions, an estimated €4.6 trillion since the start of the crisis.

"There is frustration at all levels [at the stance of the IIF]," the diplomat said. "They’re playing hardball."

The same day, both the Greek finance minister, Evangelos Venizelos, and the head of the euro group of states, Luxembourgish Prime Minister Jean-Claude Juncker, predicted that in the end, the most likely final figure would amount to a figure somewhere in between the two sides, in the region of 50 percent.

Whether any announcement on such a cut will be announced immediately after Wednesday’s summits remains an open question.

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Financial markets hoping for the outline of some grand strategy for dealing with the ever-worsening eurozone crisis are likely to be disappointed by the vague announcement offered up by the French president and German chancellor after emergency talks in Berlin on Sunday.

Belgium rescues troubled bank amid ratings warning

The Belgian state has said it will pay €4 billion to purchase Dexia, a Franco-Belgian-Luxembourg bank with high exposure to Greek debt. The move comes two days after Moody's warned it may downgrade Belgium's rating.

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The EU's 27 member states have finally agreed to a recapitalisation of the region’s banks. Eastern powers have at the same time managed to win a commitment that they will be protected against capital outflows as a result.

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Negotiations between EU leaders and representatives of the global banking industry over the scale of losses the financial institutions are willing to take on Greek debt have all but broken down.

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