40% "Haircut" by Deutsche Bank

A “compromise” plan for a “haircut” of the Greek debt by 40%, even without a substantial change in the terms of the July 21st Agreement, as suggested by Deutsche Bank analysts!

As Reuters reports, leading German specialists belonging to the bank devised a kind of “roadmap” as to how European banks can handle the losses that they will incur from a further reduction of the Greek debt. They intend to put their plan into action in view of the October 23rd summit.

Specifically, experts at Deutsche Bank estimate that a bigger “haircut” of the debt can be initiated either by a reduction of the coupon or an extension of the maturity of new bonds and finally, by reducing the principal. They are even presenting an example in which a reduction in the Greek bond coupon by 1% and an extension of repayment by 10 years will lead to a “haircut” of 40%.

The advantage of this method, according to the analysts, is that it excludes uncontrolled bankruptcy while retaining the part of the July 21st agreement which states that new bonds will be governed by international and not Greek laws. If this “PSI 2” plan, as it was named, is chosen in conjunction with a credible plan to recapitalize banks, it will lead to a dignified “solution”, as well as prevent uncontrolled bankruptcy and any risk of crisis metastasis. Most importantly, as the Germans argued, “it would give time to Ireland and Portugal to separate their economies from the Greek one”!

Furthermore, it is obvious that this plan “reduces” the Greek debt haircut to 40% - which is much lower than the 50 or 60% promoted so far by the German government, and is nearer to the French government’s wishes, which by no means wants to agree to a “deep haircut” with such dramatic effects on the large, and very exposed to the Greek debt, French banks.