LONDON/FRANKFURT (Reuters) - Bankers are bracing for a second round of losses on Greek debt if an earlier promise to write off 37 billion euros (32 billion pounds) is insufficient to help the struggling country stave off default.
German Chancellor Angela Merkel suggested this week that the details of a second international Greek bailout, hammered out in July with support from banks who agreed to share the 109 billion euros burden with taxpayers, may have to be renegotiated.
The European Union and the International Monetary Fund now in negotiations with Athens would have “to wait and see” whether the deal needed to be broken open, Merkel said on Tuesday, without elaborating.
But bankers urged policymakers to press ahead with the plan and launch a second round of private sector involvement later if needed, as reopening the negotiations could be a lengthy and risky process bound to hurt market sentiment further.
“It’s very important that you stick to this agreement now to build up confidence,” a senior German banker said.
His assessment matched that of Josef Ackermann, who chairs the International Institute of Finance bank lobby which has overseen the Greek bond exchange scheme which will inflict a 21 percent loss on bank creditors.
Greece’s lenders have sent a team to Athens to inspect the country’s plan for deep spending cuts they want in return for paying the next tranche of the first bailout which it needs next month to pay its bills or fall into immediate default.
A Greek default might be digestible for Europe’s banks, analysts have said, but a capital shortfall of hundreds of billions of euros looms if other troubled euro zone countries like Italy and Ireland follow suit.
The deal enabled politicians to soothe voters wary of pouring more money into Greece, but the 21 percent haircut the banks agreed now looks optimistic and would value the bonds far above their market prices.
Greece opened the prospect of writedowns of as much as 50 percent on its debt last week, with its finance minister quoted as saying that was the most likely scenario should Athens fail to stick to the terms of its second bailout package.
DZ Bank earlier this week became the first bank to publicly signal support for further private involvement to help cut Greece’s debt burden, saying it would be open to join a possible second debt swap for the country.
Several other bankers agreed a second debt swap could be necessary if it becomes clear the economic outlook for Greece worsens even with the second bail-out in place, and the country’s debt servicing costs unsustainable.
“Further writedowns are unavoidable,” one German banker said, speaking anonymously.
In that case, this banker would favour a second bank-supported bailout package, as the alternative would be for the country to default, which could lead to writedowns of 60 to 80 percent, a scenario that was likely far worse.
Greece has threatened to walk out of the debt swap if take-up among bondholders — mainly banks — was less than 90 percent, but the expectation is now that it will find enough support to launch the offer.
“The indications are positive and we expect participation to be high. The (90 percent take-up) target that was mentioned in the July 21 discussion should be reached,” said Hung Tran, the IIF’s deputy managing director.
Germany is due to vote on the plan on Thursday, and the swap offer will officially launch once all 17 euro-zone countries had given the exchange the green light, which Tran said he expected by early next month.
The offer would be for a two-week period, he said, and the final timing was in Greece’s hands.
($1 = 0.733 Euros)
Additional reporting by Steve slater, editing by Mike Peacock, Ron Askew