BRUSSELS – Officials of the Eurozone, the 17 countries who use the euro as a currency, have confirmed that banks and investors in Greece will lost at least half their money even as speculation built they could lose everything.
Eurogroup leader Jean-Claude Juncker said on Oct. 22 there are talks for a Greek debt “haircut” of 50 percent while a French newspaper said there is already an agreement for losses of 50-55 percent. Meanwhile, a report in Forbes magazine claimed it could be 100 percent because otherwise Greece will never recover nor be able to repay lenders. That came just ahead of a planned EU Summit the next day, but that has reportedly been pushed back to Oct. 26.
Greece is surviving on a $152 series of emergency rescue loans but Juncker said Eurozone ministers have already agreed that a 21 percent reduction in returns agreed upon in July in return for a second bailout of $157 billion was far off the mark and they would have to take much deeper losses. But a report in The Financial Times (FT) said, “Greece’s economy has deteriorated so severely in the last three months that international lenders would have to find 252 billion euros ($350 billion) in bail-out loans through the end of the decade unless Greek bondholders are forced to accept severe cuts in debt repayments.” It added: “Recent developments call for a reassessment. The situation in Greece has taken a turn for the worse.”
Under a more severe test run by economists for Troika, Greece’s bail-out needs could surpass $617 billion, a “strictly confidential” study said, according to the FT, while even the mildest assessment predicts a 60 percent loss for investors. The grim reports came after the Troika of the European Union-International Monetary Fund-European Central Bank which is loaning Greece the money to prevent a bankruptcy caused by generations of wild overspending and packing public payrolls with political hires in return for votes to keep parties in power stated that Greece needs more help from EU governments and private investors who would have to give up much of their promised returns. Greece also would not be able to operate without outside help until 2021, it was reported.
But former European Central Bank vice-president Lucas Papademos wrote in The Financial Times that “the likely financial benefits of debt restructuring would be much smaller than is often envisaged, (as) the process entails significant risks for Greece and the euro area. For institutional, political and legal reasons, there can be no debt restructuring resulting in losses that would burden official debt holders,” that at the end of July accounted for almost a third of Greek government debt.
Economists at Switzerland’s UBS Bank said that haircuts of 50-60 percent won’t be enough to save Greece as a series of big pay cuts, tax hikes, slashed pensions, and the firing of 30,000 workers – with 90,000 more on the hook – has failed, creating a deep recession and less than expected tax revenues, especially because the government has failed to go after tax evaders costing the country nearly $40 billion a year in lost revenues, nor implemented a privatization program also demanded by the Troika to raise $71 billion.
There is also a reported dispute within the Troika over how large a hit investors should take. The IMF is said to want them to get a bigger haircut, while the European Central Bank has warned it could lead to default and market panic.