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Monday, October 03, 2011 7:27 PM

Greek Haircut Under Review, No Aid Until November, October 13 Finance Meeting Canceled

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The sure thing bet that Greece would get the next tranche of bailout funds in October just vanished into thin air, as did the silly notion that haircuts would be limited to 21%.

Please consider Greek haircut under review, no new euro zone aid until November

Euro zone finance ministers are reviewing the size of the private sector's involvement in a second international bailout package for Greece, a move that could undermine the aid program and hasten the threat of a Greek default.

Ministers also agreed after a meeting in Luxembourg that Greece could wait until mid-November until it receives the next installment from its existing emergency aid program, piling more pressure on Athens to tackle its debt problems.

Jean-Claude Juncker, the chairman of the Eurogroup ministers, said they were reassessing the extent of the private sector's role in the planned second package for Greece, a centerpiece of the deal struck on July 21 to rescue Athens.

Despite more than six hours of talks, the meeting produced few concrete steps and is likely to provoke more uncertainty among investors, with expectations rising that Greece will end up having to default on its 357 billion euros of debts.

The next finance ministers' meeting on Oct 13, when they were expected to sign off on the next, 8 billion euro payment to Greece, has been canceled, and EU and IMF inspectors will have several weeks in which to report back on Athens' budget cuts.

The likelihood that Greece's funding needs next year will be greater than forecast when a second 109 billion euro rescue package was agreed in principle in July reopened a fraught battle over who should pay -- taxpayers or financiers.


Deutsche Bank chairman Josef Ackermann, head of the International Institute of Finance (IIF), which negotiated a "voluntary" bond-swap by investors as part of the bailout plan, warned at the weekend against changing the terms now.

"If we reopen the voluntary accord of July 21, we will not only lose precious time but quite possibly also private investor support," Ackermann told the Sunday edition of Greek newspaper Kathimerini.

"The impact of such a move will be incalculable. This is why I am warning in the most forceful way against any material revision," he said.

Private bondholders agreed to a 21 percent write-down on their Greek debt holdings but EU and German officials have suggested the "haircut" may have to be increased -- possibly to as much as 40 or 50 percent -- in light of a new funding shortfall and changed market conditions.
Self-Serving Ackermann Whine

Look at the self-serving whine of Deutsche Bank chairman Josef Ackermann. He warns against losing support of "private bondholders". Who is he trying to fool? The banks are the bondholders. Few others were stupid enough to buy Greek debt.

An 85% haircut would be a nice lesson to banks: "Don't do stupid things, and don't think the ECB and Fed will bail you out if you do".

Mike "Mish" Shedlock
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