Monday 23 October 2017

New plan to see banks suffer 50pc losses on Greek government loans


Jan Strupczewski and Harry Papachristou

BANKS could suffer losses of 50pc on their loans to the Greek government, under plans being discussed in Brussels.

Eurozone countries will ask banks to accept losses of up to 50pc on their holdings of Greek debt, officials said yesterday. It's part of a master plan to avert a disorderly default and try to end a crisis that threatens the world economy.

European leaders will hold a make-or-break summit on October 23 where a comprehensive new Franco-German crisis plan is expected to be discussed.

Four eurozone officials told Reuters that a "haircut" or loss of between 30pc and 50pc for Greece's private creditors is under consideration.

Greece has already signed off on a deal with its lenders that will see banks suffer a 21pc loss when they swap the government bonds they currently own for new bonds due to be paid back in 30 years.

The deal already announced was signed off by European leaders and representatives of the bank sector before an EU summit on July 21.

Since then, the Greek economy has sunk deeper into recession, fanning fears of an outright default and forcing eurozone leaders to consider more radical action to stem the crisis.

To restore confidence in the banking system, officials are also working on plans to shore up the balance sheets of banks through recapitalisations.

Greece's debt mountain is forecast to climb to €357bn this year, or 162pc of its annual economic output.

The crisis has rumbled on for almost two years but eurozone governments have failed so far to come up with a convincing plan for how to cope with it.

"We are negotiating in every way to lighten this debt," Greek Prime Minister George Papandreou told a cabinet meeting yesterday.

A eurozone official told reporters that the final level for private sector participation had not been set and it was unclear as yet how banks would react to the new demands.

"A voluntary participation is the target, for now at least, and many feel strongly that we must avoid any risk of a full default," the official said, requesting anonymity.

The European Central Bank is against forcing losses on banks that previously loaned money to the Greek government. It is concerned that the realisation of those losses will undermine, possibly fatally, the health of at least some European banks, with unknown consequences for the economy. (Reuters)

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