Tuesday

19th Nov 2019

Eurozone chiefs reach deal with bank bosses on Greek haircut

  • The world's banks eventually agreed to accept a haircut of 50 percent on their Greek holdings (Photo: andres rueda)

Eurozone leaders have reached a deal with the world’s major banks under which they will accept a haircut of 50 percent on their holdings of Greek sovereign debt.

Early Thursday (27 October) morning, EU Presidents Herman van Rompuy and Jose Manuel Barroso announced that an agreement had finally been hammered out with the Institute for International Finance, the association representing the sector, after hours of stonewalling by the banks, who had refused to accept a write-down of Greek bonds exceeding 40 percent.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 year's of archives. 30-day free trial.

... or join as a group

“It was agreed tonight there will be a nominal discount of 50 percent of notional Greek debt,” a weary Van Rompuy told reporters just after 4am in the European capital.

Earlier in the night, the managing director of the IIF, Charles Dallara, who led negotiations with EU premiers and presidents over the issue, had put out a statement saying bluntly: “There is no agreement on any element of a deal."

European leaders had been pushing for the banks to accept losses of 60 percent.

The International Monetary Fund for its part is understood to have favoured a haircut of 75 percent, arguing that a more substantial write-down was the only way to ensure that Greece’s debt can be held at a sustainable level.

Without such a reduction in its debt pile, the Washington-based lender feared that Athens will not indefinitely have to be attached to a drip-feed of bail-outs to keep its economy alive.

German Chancellor Angela Merkel, French President Nicolas Sarkozy, IMF boss Christine Lagarde and EU Council President Herman van Rompuy met privately with Dallara through the night in a desperate attempt to convince the banking chief to break his stonewalling.

And ultimately, according to German Chancellor Angela Merkel, the EU leaders prevailed in pushing up the contribution of the banks.

“We actually at our level only made one offer. The representatives of the banks took it back to other banks,” she told reporters. “This was our last offer. In the end we got their approval."

Asked whether the EU leaders ever threatened the banks with an imposed haircut, which would have entailed a hard Greek default, she replied: “Since an offer was made, we never hit that point, but clear a voluntary contribution was preferred so we didn't need to think about the other option.”

Van Rompuy also announced that eurozone leaders had agreed a plan to leverage the area’s rescue fund, the European Financial Stability Facility (EFSF), to build a “firewall” of some €1 trillion, although technical details of the plan will not be decided for perhaps another month.

The EFSF will now insure against first losses on the issuance of fresh sovereign debt at a level of somewhere between 20 and 30 percent while at the same time establish a number of ‘special purpose investment vehicles’, or Spivs, which hopes to attract investment from sovereign wealth funds in China and other emerging economies, and will also involve additional participation of the International Monetary Fund.

Both aspects of the reinforcement of the EFSF will “multiply up to five-fold the firepower of the EFSF,” he said, “depending on market conditions, the set-up and investors’ responsiveness in view of economic policies.”

Banks stonewall EU leaders on haircut

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.

EU agrees to fresh bank bail-outs

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.

Banks, Europe haggle over scale of bond haircut

The world’s banks have delivered 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”.

Commission to unveil bank bail-out plan

European Commission President Jose Manuel Barroso has said that the EU executive will put forward plans for a fresh round of bank bail-outs across Europe on Wednesday.

First doubts emerge over eurozone deal

Markets sky-rocketed on Thursday in reaction to the eurozone deal sealed by EU leaders earlier that morning, but economists are starting to question the fine print, which the Polish Prime Minister presciently dubbed as "hell" hidden in the details.

News in Brief

  1. Hungary, Poland block EU conclusions on rule of law
  2. France: wide EU backing for enlargement change
  3. EU Council calls for policy action to protect marine life
  4. ECJ: Poland's judicial independence in doubt
  5. Suspected 'middleman' in Caruana Galizia case arrested
  6. European populists more favourable to Russia
  7. Hungary's new commissioner approved by MEPs
  8. Balkan coal power plants fail to meet emissions targets

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  2. Nordic Council of MinistersNordic Climate Action Weeks in December
  3. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  4. Nordic Council of MinistersBrussels welcomes Nordic culture
  5. UNESDAUNESDA appoints Nicholas Hodac as Director General
  6. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  7. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  8. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  9. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  10. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  11. Nordic Council of MinistersNo evidence that social media are harmful to young people
  12. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021

Join EUobserver

Support quality EU news

Join us