Saturday, October 22, 2011

Europe Update

by Bill McBride on 10/22/2011 09:59:00 PM

Although there will probably be an announcement on Sunday, the deadline has been moved to Wednesday ... it is pretty clear that Greece bondholders will take a much larger haircut than the original 21%.

From the NY Times: European Finance Ministers Shaping Greek Rescue and Effort to Aid Banks

European finance ministers said on Saturday that they were near a deal to strengthen capital reserves for their troubled banks — the first part of a package of measures meant to stem the worsening European debt crisis.

... the ministers also said that holders of Greek bonds would have to take much bigger losses than the 21 percent originally agreed to in July, though ... no agreement was near on write-offs that could reach as high as 60 percent.

The ministers also reported that France and Germany had made progress on a third issue, how to increase the firepower of a rescue fund for the euro zone.
Alphaville at the Financial Times has excerpts from the grim report on Greece: Greek haircuts and Greek myths — the details
To get the debt down further would require a larger private sector contribution (for instance, to reduce debt below 110 percent of GDP by 2020 would require a face value reduction of at least 60 percent and/or more concessional official sector financing terms).
From the Telegraph: Europe's leaders threaten Greek default if banks won't take haircut and accept losses of £120bn
Europe's leaders are threatening to trigger a formal default on Greek debt and risk a “credit event” if banks refuse to accept losses of up to €140bn (£120bn) on their holdings.

Hardline eurozone members, backed by the International Monetary Fund (IMF), delivered the ultimatum this weekend ... Vittorio Grilli, a senior EU official, travelled to Rome yesterday to present the “take it or leave it” deal to the Institute of International Finance, which is leading the negotiations for the banks. “The only voluntary element for the banks now is to take a 50pc haircut or face a credit event, a default,” said an EU diplomat.