Greek banks plan for the debt

The proposals of the Greek banks for milder haircut scenarios will be examined today at the discussion of EU leaders. Reportedly, the Greek bankers presented an alternative plan to the government for the management of the Greek debt in an effort to prevent the de-hellenization of the banking system. They asked to include it in the negotiations with the EU, in order to make it viable but also to limit the impact of the Summit decisions on the Greek banking system.

According to information, the bankers asked the Greek PM to include their proposals in the plans for discussion with the European leaders. At the same time, they forwarded it to foreign bankers (for example the French, whose banks face an acute problem because of Greek government bonds) in order to talk about them, support them and persuade their governments to adopt them.

The joint proposal of the Greek bankers is trying to meet the German demands of direct debt reduction by 100 billion euros, and leverages their mood for foreign aid of 30 billion.

They propose two basic scenarios for creditors to choose from. In both cases, the average slashing of bonds is high and reaches 50%. The interest rate on the new loan would be approximately 6%.

The first option provides for a wider cut, at approximately 50%, and offers a higher interest rate because the package will only contain bonds without cash. Up to a point the amount will go to the banks and the rest will be guaranteed by the EFSF to avoid problems in the banking system.

The second package will have a smaller cut at 30% -35%, but no guarantee without the EU behind it. That is, they will offer new Greek government bonds at a duration of 30 years or more, but no EFSF guarantees as offered in the package of July 21.

Bankers favor the second scenario and present tables that show how it will have an effect equivalent to the 50-60% haircut promoted by Berlin.

As one can now see, European leaders will give political guidance but will not announce the haircut percentage. This will be passed on to the finance ministers and working groups that will start work after the Summit, since so far they were unable to prepare the ground so that everything would be ready by now.