PARIS — Any deal forcing banks to take bigger losses on Greek debt “would be tantamount to default” and impose a high cost on European taxpayers, the lead negotiator for the banks warned on Monday.
Banks and other private sector holders of Greek government bonds have been holding talks with EU officials to revise a plan agreed in July and take bigger losses on the debt, but Charles Dallara, managing director of the Institute of International Finance (IIF), warned against pushing too hard.
“There are limits … to what could be considered as voluntary to the investor base and to broader market participants,” said Mr. Dallara.
“Any approach that is not based on cooperative 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,” he said.
EU leaders on Sunday outlined plans to recapitalise and improve funding for European banks, but failed to resolve how big a loss the private sector takes on Greek bonds and how to make best use of the EFSF eurozone rescue fund. They are meeting again Wednesday with the goal of hammering out a final deal.
Banks have offered to stretch the voluntary loss on Greek debt to 40%, from July’s agreement to take a 21% loss, but politicians are demanding the private sector agree to writedowns of at least 50% , a senior German banker said. Banks fear that too big a “haircut” will set a dangerous precedent, particularly for Italian bonds.
The head of the French banking federation, Frederic Oudea, warned Monday that discounting the value of Greece’s sovereign debt held by private investors by more than 50% could cause contagion by denting investor confidence in Italian and other sovereign debts.
Meanwhile, in Berlin Monday German lawmakers flexed their muscles to secure a full parliamentary vote on Wednesday on eurozone crisis measures negotiated by Chancellor Angela Merkel and her eurozone peers, a move senior politicians said would give Ms. 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 eurozone rescue fund, and should pass without problems, but it risks delaying Europe’s response to the debt crisis at a crucial juncture.
Ms. Merkel cannot agree to changes to the 440 billion euro 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.
However, Ms. Merkel’s Christian Democrats’ (CDU) floor leader Volker Kauder demanded a full debate and vote by the German Bundestag (lower house of parliament) rather than just a vote by the 41-member budget committee, which might have been quicker and less risky while still meeting new rules on consulting MPs.
Major opposition parties the Social Democrats (SPD) and the Greens welcomed the vote, and indicated they would back proposals aimed at countering the debt crisis. But they stopped short of confirming they would vote “yes,” saying they needed to see documents detailing the proposals first.
The Chancellor’s supporters praised her for getting France to drop demands to use the European Central Bank to leverage euro crisis funds, and there was broader support also for a leader often accused of dithering.
“Merkel’s Battle for our Euro,” was Monday’s headline in the mass-circulation conservative paper Bild, saying she taught France’s Nicolas Sarkozy “that the EFSF rescue fund cannot be used to print money” to solve the debt crisis.
Mr. Sarkozy ceded to German insistence at Sunday’s summit that the ECB should not be used to fight the crisis, which poses an especially big threat to French banks and France’s triple-A sovereign debt rating.
Instead, an EU paper obtained by Reuters suggested the eurozone would take up Germany’s proposal of boosting the EFSF’s firepower by using it as a form of debt insurance, combined with seeking help from emerging market economies like China and Brazil via a special purpose investment vehicle (SPIV) to prop up the euro zone’s secondary bond market.
Italian Prime Minister Silvio Berlusconi on Monday defended his government’s commitment to fiscal rigor after the European Union urged Italy to pass “comprehensive” measures to fight the debt crisis.
“We are meeting our public-debt obligations on time, we have a primary surplus stronger than our partners,’ we will reach a balanced budget in 2013,” Mr. Berlusconi said in an emailed statement. Mr. Berlusconi was put on the defensive at the Brussels summit over the nation’s finances and appointments at the European Central Bank. While Mr. Sarkozy said he had confidence in “Italian authorities as a whole” at a press conference yesterday in Brussels, he declined to answer a follow-up question on whether he had confidence in Mr. Berlusconi.
Reuters
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