Europe’s leaders hailed a successful end to 10-days of pressure on the bank lobby with what they termed a breakthrough deal that prevents lenders triggering Greek credit default insurance.
Leaders, who had originally hoped to clinch the grand bargain at a summit on October 17, finally closed the deal at around 3:00 am (0100 GMT). After one cancelled summit, a frantic weekend of preparations involving finance and foreign ministers, and four emergency EU and eurozone summits, carefully orchestrated arm-twisting saw the Institute of International Finance (IIF), representing the banks, finally sign up to one magic word.
“Voluntary,” said eurozone chief Jean-Claude Juncker — who started and finished the 10-day campaign in tough negotiations with IIF negotiator Charles Dallara.
“The bankers understood,” Juncker said, after several meetings last week alongside EU President Herman Van Rompuy, and a final dramatic sit-down with German Chancellor Angela Merkel, French President Nicolas Sarkozy and IMF managing director Christine Lagarde.
The crucial face-to-face, which Sarkozy warned would take place during a now-infamous off-the-record briefing on Sunday, lasted just 45 minutes.
The bankers realised the EU had “resolved not to envisage a default for Greece, had the bankers not been ready to do the deal they now have,” Juncker said on his way out.
Eurozone states will mobilise 30 billion euros in guarantees for those parts of the Greek debt not written off in Brussels, as well as “a new 100-billion-euro” bailout.
Banks accepted a 50-per cent writedown on their Greek bonds to reduce the country’s debt mountain by 100 billion euros after hours of tough negotiations at a summit that ran from Wednesday evening to early Thursday morning.
Also agreed in a four-point package of measures was an agreement for banks to beef up their capital buffers to absorb losses on Greek bonds, as well as pledges to tighten economic governance and fiscal discipline.
In July, the eurozone offered Greece a second bailout and also agreed that banks would take a 21-per cent loss on their bond holdings. But the economic situation deteriorated rapidly.
Dallara had said in a statement mid-negotiation that there was “no agreement on any element of a deal.”
Leaders also agreed a 106-billion-euro bank recapitalisation, “that wasn’t watered down, it now has been agreed,” British Prime Minister David Cameron said.
In a summit statement, EU leaders said measures to restore confidence in Europe’s banks “are urgently needed and are necessary in the context of strengthening prudential control of the EU banking sector.”
They declared a “broad agreement” for banks to increase their core Tier 1 capital ratio to 9.0 per cent of assets by June 30, 2012. This is two percentage points higher and seven years earlier than under new international banking rules recently agreed in the Basel III regulators accord.
Banks must first try to raise funds through “private sources of capital, including through restructuring and conversion of debt to equity instruments.”
Until the target is reached, the statement said, “banks should be subject to constraints regarding the distribution of dividends and bonus payments.”
Governments should provide aid if necessary, the document says. But if such aid is impossible among eurozone nations, the bloc’s bailout fund, the European Financial Stability Facility (EFSF), could provide the money.
Brussels, Oct 27, 2011 (AFP)
