Update: Eurogroup Meeting Saturday On Greek Haircut, Banks

Author: Market News International | Category: News

–Adds New Material On IIF Agreement To Bigger Haircut, Sunday EU Summit

By Angelika Papamiltiadou

BRUSSELS (MNI) – Eurozone finance ministers will return to the
negotiating table Saturday afternoon in an emergency meeting for further
talks on a plan to recapitalize European banks and increase the haircut
on privately-held Greek sovereign debt, a senior EU official told Market
News International.

Earlier today, the 27 European Union ministers decided in principle
on a framework for bank recapitalization of up to E100 billion by the
end of June 2012, the same official said.

The Eurogroup’s extraordinary meeting, the second of the weekend,
will also deal with proposals aimed at putting a bigger share of the
burden for a new Greece bailout plan on Athens’ private sector
creditors.

A plan for private sector involvement (PSI) agreed in July would
have included a 21% haircut on the value of Greek sovereign bonds held
by private financial institutions. But since then, there has been
widespread acknowledgement, pushed by Germany, that the private sector
hit needs to be bigger.

“There are two scenarios currently on the table,” the EU official
said. “One is a ‘PSI-Plus’ agreement that could double the initial
proposal and extend a haircut to 42%, and another, a more drastic
solution, for a haircut of 50%-60%.”

The Eurogroup is expected to try and hammer out a road map for the
EU and Eurozone heads of state and government to follow at their summit
meetings on Sunday. The same EU source hoped that the “bulk of the
decisions will be taken on Sunday and that the EU leaders will
understand the importance of a clear message to the markets.”

He added that the Institute of International Finance, a global bank
association, has agreed to the principle of a bigger haircut on Greek
debt, but he declined to comment whether it was the 42% or the 60% plan.

A European Commission report leaked to reporters on Friday argues
that unless Greece receives a 60% haircut, its debt will skyrocket to
186% of GDP in 2013, and the country will need a loan of E252 billion to
cope financially, instead of the E109 billion euros agreed in July.

Since none of the countries, especially the triple A ones, wish to
increase their lending contribution, it is widely believed they will
accept a bigger haircut.

In another development, the European Financial Stability Facility
is expected to be used as a last resort lender for banks that fail to
secure enough capital via shareholders or their national governments.

–Athens Bureau, a_papamiltiadou@hotmail.com

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