Sunday 4 December 2016

Greek bonds facing 60pc haircut in €1trn package

European banks threaten chaos as leaders make moves to appease nervous markets

Published 25/10/2011 | 05:00

German chancellor Angela Merkel. Photo: Getty Images
German chancellor Angela Merkel. Photo: Getty Images
Greece's jobless rate rose to 16.5pc in July, its second-highest level on record, driven by EU/IMF-imposed austerity measures

HOLDERS of Greek debt have been asked to accept a 60pc cut in the face value of their bonds, as European governments study ways to raise a staggering €1trn to tackle the debt crisis.

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In an angry statement the banks threatened chaos if the new deal is pushed through by Europe.

"Any approach that is not based on co-operative discussions and involves unilateral actions would be tantamount to default, would isolate the Greek economy from international capital markets for many years, and would impose a harsh burden on the Greek people as well as European taxpayers who have already done a lot to support Greece," the Institute for International Finance (IIF) said in a statement.

Meanwhile, German lawmakers last night moved to secure a full parliamentary vote tomorrow on euro zone crisis measures negotiated by Chancellor Angela Merkel and her euro zone peers, a move senior politicians said would give Merkel a stronger mandate.

The new vote comes just one month after Germany's Bundestag (lower of house of parliament) approved greater powers for the euro zone rescue fund, and should pass without problems, but it risks delaying Europe's response to the debt crisis at a crucial juncture.

Merkel cannot agree to changes to the €440bn European Financial Stability Facility (EFSF) without approval at least from the Bundestag's budget committee, as a result of a constitutional court decision last month.

On Sunday the leaders gave themselves until tomorrow to agree a comprehensive package of measures to tackle the debt crisis. The latest plan will combine a deal on slashing Greek government debt with a scheme to raise a €1tn fund to stop the fallout from the Greek crisis spreading elsewhere.

Options to boost the rescue fund narrowed after other leaders bowed to a German demand that the €440bn bailout fund can only be bulked up if it does not need fresh funds from member states.

Last night teams in each of the 17 eurozone countries studied a combination of two proposals to boost the rescue fund that remained on the table after the tense summit last weekend.

The first element is for Europe to use some of its current €440bn funds to offer insurance to lenders to Italy and Spain, and any other country in danger of being priced out of the markets.

It's favoured in conservative countries including Germany because there is no up-front cost to the members.

Analysts, however, say it may be too flimsy to convince the managers of pensions and insurance funds that their money is safe.

To make it work, euro leaders are considering using the guarantee as the basis for raising a €1tn war chest to tackle the crisis -- sourcing the money on world markets.

Evolution Securities analyst Elizabeth Afseth said private sector investors were unlikely to back the scheme but said China and other cash-rich states as well as the IMF would invest for their own strategic reasons.

China would fund the scheme if it helped prevent a global meltdown that would hurt China, she said.

The official Xinhua news agency yesterday used strong language when it called on Europe to get on with the plan.

"It's time for European leaders to show wisdom, determination and drive to step out of the crisis-cast shadows," it said.

Irish Independent

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