The debate about the haircut of Greek debt has a new dimension, as a large proportion of banks involved in the negotiations expressed the view that the policymakers’ threat of a haircut by 60% would happen without the willingness of banks. That would mean a default, for which banks have no objection, as they state that they have already adequate CDS, which originate from U.S. investment banks.
In other words, they threat that if politician disagree with the proposal of 40% haircut voluntarily without the activation of the CDS, then they would face a haircut by 60% that would provide a credit event.
Controversy seems to intensify and agreement is now far from forthcoming.
Lukas Papademos, former Vice President of the European Central Bank, insisted that a haircut by 69% could have uncontrollable consequences.
Diplomatic sources, who monitor these negotiations, noted that the bankers have raised a second argument. They seek to extend regulation in non-private debt, which concerns both sovereign loans and ECB bonds, but Eurozone policymakers are strongly opposed.
According to the same sources, bankers’ pressures do not focus only on that target.
It is related also to the change of EFSF role and revival of Sarkozy’s proposal to convert the EFSF in a bank with funding from the ECB. But this proposal has been temporarily withdrawn from the negotiations.
Latest information indicates that the proposals for the activation of the EFSF focus on limited leverage of the rescue fund to use it directly or indirectly as a collateral for a part of the bond issues, beyond the role of lender for the troubled economies.
Sources close to the European Commission note that a solution to this impasse should be anticipated no later than tomorrow.
(source: capital)
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