Wednesday

6th Jul 2022

Banks stonewall EU leaders on haircut

  • Smashed window at bank in Greece (Photo: Josh Clark)

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

As the EU awaits market openings with trepidation with still no deal on a resolution to the eurozone crisis in sight, in the end it is not Franco-German divisions, the stability of the government in Italy or the commitment of Greece to implement austerity, but the refusal of the world’s banks to accept deeper write-downs on their exposure to Hellenic debt that could be the straw that breaks the European camel’s back.

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The managing director of the Washington-based Institute for International Finance (IIF), the association representing the sector, Charles Dallara, who is leading negotiations with EU premiers and presidents over the issue, late on Wednesday (26 October) put out a statement saying "no agreement" has been reached.

"There has been no agreement on any Greek deal or a specific haircut," Dallara said, stealing a public relations march on European leaders who have remained largely silent as talks progress.

"We remain open to a dialogue in search of a voluntary agreement. There is no agreement on any element of a deal."

It is understood that the IIF bluntly told leaders they would accept nothing higher than a 40 percent write-down. France and Germany are pushing for a haircut of 50 percent.

The International Monetary Fund (IMF) for its part has said that a cut of 70-75 percent may be needed if Greece’s debt is to be held at a sustainable level so that Athens will not indefinitely have to be attached to a drip-feed of bail-outs to keep its economy alive.

EU leaders had promised that a comprehensive solution would be delivered last Sunday, only to be forced to admit that such a plan could not be agreed until Wednesday of this week due to differences between core European powers.

As of the early hours of Thursday morning, German Chancellor Angela Merkel, French President Nicolas Sarkozy, IMF boss Christine Lagarde and EU Council President Herman van Rompuy had locked themselves in a room in the European Council building in Brussels with Dallara in a desperate attempt to convince the banking chief to give ground.

The two other big planks of a comprehensive solution to the eurozone debt crisis - a bank recapitalisation of around €110 billion and the modalities and scale of a boost to the eurozone’s rescue fund - have been agreed at the summit, however.

Eurozone leaders backed a plan to boost the European Financial Stability Facility (EFSF) to 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. It will at the same time establish a number of special purpose investment vehicles, or Spivs, which will hope to attract investment from sovereign wealth funds in China and other emerging economies, and will also involve additional participation of the International Monetary Fund.

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.

Rehn to get increased economic powers

EU monetary affairs commissioner Olli Rehn is to be given extra powers to supervise national fiscal policies, as the commission moves quickly to centralise economic governance powers in Brussels.

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