Will we have a haircut and a credit event too?

According to a telegram wired by Reuter’s agency, the individuals who will participate in the bond exchange program of the second rescue program for Greece should prepare for a haircut of 30% to 50% on the Greek debt.

Citing statements by a European official, the agency emphasizes that Eurozone leaders are considering increasing the rate of shearing, identified at 21% in the July 21 agreement, mainly because in the meantime the financing needs of Greece have increased due to the deeper recession and delays in the implementation of privatizations and reforms.

Again according to statements by the same official, the additional funding costs of Greece will be split between Eurozone governments and individuals who hold Greek bonds. In any case, the objective of the Euro area is for the participation of individuals to remain voluntary, so as to avoid the risk of complete bankruptcy. And this is why sources of the German and French governments stressed that the haircut decided upon must be set "at a level consistent with the voluntary participation of individuals."

And this is exactly the objection of many analysts who spoke to Bloomberg. In fact, the experts of Barclay's Capital, Evolution Securities and Credit Agricole, stressed that "if the European proposals to increase writedowns on bonds exceed the already agreed 21%, then this might trigger the credit default swaps (CDS) ". Which means there will be a credit event that the European political and economic leaders are so fervently trying to prevent.

Meanwhile, a telegram from the French News Agency stirs the waters as it speaks about a proposal by European Commission president Jose Barroso to MEPs to "maximize the 'firepower' of the EFSF".

According to the AFR, Barroso proposed - and this proposal is being examined by the governments of the Eurozone - increasing the EFSF power to 2,5 trillion euros even without the member states contributing more money. However, the agency stressed that Barroso gave no further details on how to achieve such leverage…