Banks Threaten with Lawsuit on Levy on 2nd Greek Bailout

Less than 24 hours are left until the Euro Zone Summit in Brussels and it looks as if a definite solution has not been found yet. The participation of the private sector divides the decision makers like  France, Germany and the ECB. The option to raise a levy to banks in order to facilitiate the second bailout for Greece has met the opposition of bankiers, who threaten to go to court.

Banks are on track to offer a complex Greek rescue proposal, which excludes a bank levy, to a meeting of euro zone leaders on Thursday, three industry sources said.

The banks are ready to fight a bank levy in the courts if one is imposed on them to fund a Greek bailout, arguing it would unfairly punish those not exposed to the country, two of the sources said on Wednesday, though it was not clear on what grounds a legal case would be made.

The proposal from private sector creditors to Greece, being co-ordinated by the Institute of International Finance, would include a range of options  that would help a bigger private sector participation.

“The IIF has presented a menu of options that meet the needs of different institutions,” the source said.

A tax on euro zone banks to raise €10-billion a year for three years has been proposed, but that would send a completely wrong signal by punishing banks regardless of their holdings, the sources said.

France, whose banks are most exposed to Greece, has been more supportive of the levy.

Banks had received signals that governments regard the tax proposal as a last resort if no other solution could be found, one of the bank industry sources said.

A tax was put forward as an option in a confidential paper drafted ahead of the 17-nation summit and obtained by Reuters.

Other options include creditors voluntarily agreeing to roll over their holdings of government debt and extending the maturity, and a buy-back of Greek bonds to reduce its 350 billion euro debt pile – nearly 160 per cent of annual economic output.

(source: The Globe and Mail via CTV )