There is a strong public confrontation between the Greek government and the Greek banks as the latter oppose a haircut of 50% or more percentage. Tuesday morning, prime minister George Papandreou while calling political parties and citizens to show ‘collectedness’ ahead and after the critical EU Summit on Wednesday, describing the ‘haircut’ as a “national target”.
“We all have to contribute to that national goal. And when I say ΄all΄, I also mean the banks,” Papandreou told reporters. “They too must take a certain amount of this big problem so there is a just distribution of the burden.”
The dispute between government and banks is at its peak, just 24 hours before the critical EU decisions. The bankers are trying to prevent a cut of 50% or more in the nominal value of the Greek state bonds considering that this development will force the Greek banks to be nationalized.
PM Papandreou and FinMin Venizelos asked in the most formal manner bank executives to channel funds to the real economy and indirectly invite the major shareholders of banks to put their hands in their pockets and pay the cost of recapitalization of the credit institutions.
On their part, Greek bankers are forced to take the most crucial decisions in their carrers – and maybe their last ones.
From early in the morning all the major banks top executives are trying to collect information from Brussels, Berlin, Frankfurt on the height of the ” haircut” of Greek bonds that might be higher than 50%.
If the scenario that “wants the bonds that will go into this process be extended until 2035 and not until 2020” proves to be true. then the situation will be even more difficult.
On Monday, the bankers informed the Ministry of Finance that “any large haircut” will have to be decided on general assemblies of the banks, as it will fundamental alter their financial positions. They also said that they could be accused of infidelityif not convene general assemblies. Alternatively the bankers proposed to the Ministry to legislate on the amount of the haircut. But this would automatically mean a credit event and CDS would have to be paid.
The relations between the two sides are almost frozen. So the bankers, given that their relationship with government is the worst possible point, are concerned about the ‘day after’.
– The banks need total capital of over 15.5 to 16.5 billion euros to recapitalize. The big question now is whether major shareholders of banks will be willing to contribute such a large amount specifically in a period where banks suffered heavy losses in the Stock market.
– The figure of 17 billion must be added as an extra provision that would be required by the Bank of Greece, after the fundings of Black Rock. It is considered impossible for the Greek banks to be able to find a total of 27 billion euro
Given the bad relations with the FinMin, Greek bankers focus now mainly on IIF and the pressure of France and Spain and Italy for the individual terms of banks’ funding via the EFSF. France and Germany agreed that, if banks can not find the necessary capital markets, they should first seek national aid, and if this impossible then turn to EFSF.
In private conversations, Greek bankers explain, that “if the recapitalization is conducted directly by the EFSF, the conditions that will apply will be similar to all European banks; not the same as getting aid by the national Financial Stability Fund with loans from the EFSF. In the first case, preference shares may be issued in order to avoid deleveraging of banks at a time when Europe is threatened by depression. ”
If indeed this happens it may be that Greek banks will avoid nationalization and will have to deal with euro-nationalization. It is no coincidence that Reuters reported citing a “‘Greek government source” that whatever the outcome on Wednesday, Greek banks remain in private hands and will not be nationalized. (source: Proto Thema )
Given the yawning emptiness in the state pockets, it is more likely that Greek banks will get the EFSF support after they have fruitlessly exthausted national options. Something like the provisions for European Court of Human Rights. First you exhaust the national instances, then you go … Europe.