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Bad News for Banks: Greece May Not Pay Them

Greek Finance Minister Evangelos Venizelos is a worried man these days

ATHENS – As Greece daily steps closer to defaulting on its loans, Finance Minister Evangelos Venizelos has reportedly told Members of Parliament the only ways out of the crisis are getting a second promised bailout from international lenders of $146 billion, a disorderly default – or paying back banks only half of what is owed.
Credit-insurance prices on Greece indicate the chance of default at more than 90 percent and investors may not get paid back anything, Mark Schofield, head of interest-rate strategy at Citigroup Inc. in London told the B Bloomberg news agency.
Two Greek newspapers reported Venizelos had outlined the grim prospects but a government spokesman denied it. Ta Nea, citing someone who heard Venizelos talk to Members of Parliament of the government’s ruling PASOK Socialist party, quoted him as saying, “It would be dangerous to request” the 50 percent haircut. He also said: “This would require an agreed and coordinated effort by many,” the paper reported. Deputy government spokesman Angelos Tolkas said the government would stick to the bailout plan agreed between Greece and its lenders two months ago.
“The big challenge is to avoid any default or collapse,” he said. Venizelos and Prime Minister George Papandreou are trying to put down a rebellion growing in the PASOK MP ranks over a second round of Draconian measures that include further deep cuts in pay, monster taxes and slashed pensions and the immediate lay off of 30,000 municipal employees, a number that could grow to 100,000, more than 10 percent of the workforce. Those were demanded by the EU-IMF-ECB Troika which has put up the money to try to save Greece.
The reports came as Moody’s Investors Service cut the credit ratings of eight Greek banks. It cited a struggling domestic economy and falling deposits among reasons for the move, which markets had expected. Moody’s said the outlooks for all the ratings remained negative. Some European banks in July agreed to contribute to the second rescue plan for Greece by taking a 21 percent loss on bonds maturing before 2020. The deal, which involves banks swapping debt for longer maturity bonds of 15 or 30 years, prompted banks to take a loss on their bonds in second-quarter results.
(Sources: Bloomberg, Reuters)

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