60% "haircut" and ECB participation?

According to information released on Wednesday, it is likely that we will have a “historic compromise” in the Eurozone, with Germany imposing its ideas of a large cut in banks and insurance bonds but in return, accepting - under certain conditions - that the EFSF should bear the brunt of the 110 billion needed to recapitalize banks.

According to the scenario released in the markets, the "haircut" of individual bonds will be 60%, while Greek bonds of the ECB will also be included  with a lower rate of around 10-30%, at the price of purchase from the secondary market in order that the Central Bank does not sustain capital losses. The needs of bank recapitalization are identified at 110 billion and will be covered by the EFSF.

In order for banks to accept the voluntary “haircut” of 60% and prevent a credit event, the EFSF will take it upon itself to cover the capital needs of European banks with preference shares. Thus, the plan to support banks during the 2008 financial crisis will be implemented with certain variations. Banks will pay annual interest to the EFSF in order to cover the capital support they have received. If they are unable to return EFSF funds whereby they were strengthened within a specific time period, then the shares will be converted into common shares and the EFSF will be able to sell them.