Wednesday 17 October 2018

Euro chiefs target €70bn Greek debt 'haircut'

Jan Strupczewski

EUROPE is working on "last chance" options to cut Greece's debts and keep it in the eurozone.

But a final rescue could see the ECB and national central banks taking significant losses on the value of their Greek bond holdings, officials said.

The latest aim is to reduce Greece's debts by a further €70bn to €100bn, several senior eurozone officials familiar with the discussions said, cutting its debts to a more manageable 100pc of annual economic output.

The favoured option is for the ECB and national central banks to carry the cost, but that could mean that some central banks, and the ECB itself, having to be recapitalised, the officials said.

Asked about this, one of the four officials Reuters spoke to replied: "Yes, but so what?"

The ECB declined to comment yesterday.

Private lenders suffered big writedowns on their Greek bonds under a second bailout for Athens sealed in February, but this was not enough to put the country back on the path to solvency and a further restructuring is on the cards. Officials described a further restructuring of Greek debt as a last chance to restore the country to solvency, with the agreed goal of cutting its debt to 120pc of GDP by 2020 already seen as far beyond reach.

IMF

The International Monetary Fund (IMF), is in favour of overhauling Athens's official-sector loans -- a process policymakers refer to as "OSI" or official-sector involvement.

"If I were to assign a percentage chance to OSI in Greece happening, I would say 70pc," one eurozone official said.

One of the options being worked on would involve the ECB and national central banks in the euro system writing down the value of the Greek government bonds they hold by a 30pc "haircut".

This would amount to slightly more than €70bn to €100bn, one official said, depending on how the process is carried out.

"The big mistake (in February) was that we didn't manage to haircut the Greek government bonds that were in the investment portfolios of the national central banks. That was really, really stupid," the official said.

Politically it may be easier for policymakers to get the ECB and national central banks to take a hit on their bond holdings, rather than eurozone governments which would mean that taxpayers suffered direct losses.

Two officials indicated that the French, Maltese and Cypriot central banks were most exposed to Greek government debt.

"France has a huge amount. Very large," one official said.

"The preference is that the OSI would happen on ECB books," one of the sources said.

"The ECB would have to be recapitalised as a result, but that would be politically much more acceptable than a loss for taxpayers." (Reuters)

Irish Independent

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