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The International Monetary Fund warns that the 50-per cent haircut on the Greek debt is not sufficient already

30 December 2011 / 13:12:18  GRReporter
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The International Monetary Fund warns that the 50-per cent haircut on the Greek debt is not sufficient, Dow Jones reports, citing two independent sources of the Fund. According to them, cutting half of the Greek debt can no longer ensure that the country will be able to serve the other half. The reason, according to the economists from Washington, is that the economic situation in Greece has deteriorated sharply and economic indicators will be subject to a new adjustment after the one made a month ago. These new adjusted indicators of the Greek economy show that the country will not be able to serve the cut by half debt and a new bold haircut will be necessary.
    As is known, the International Monetary Fund is not directly involved in the PSI negotiations for the involvement of private creditors in the Greek debt cut but has observer status. However, the status of the organization requires the country, which will be lent to be able to serve its debt. This is extremely bad news for the Greek financial sector, which anyway is gasping under the burden of the 50-per cent haircut, and the threat of nationalization of banks and consolidation of insurance companies make it more sensitive than ever.
    The Athens Stock Exchange ended the year with three banks less on its panel. Proton Bank and TBank ended 2011 ingloriously as they need a recovery programme and Emporiki Bank left the stock exchange. Geniki Bank is expected to follow its example. However, this is nothing compared to the expectations of bankers themselves for bad news in their sector in the first weeks of the new year, when the PSI Plus negotiations will end and Black Rock Solutions will announce the verification results of the credit records of Greek banks.
    The main objective of bankers is to avoid the services of the Financial Stability Fund by all means, which in practice will lead to their nationalization. No matter how many banks remain private, the picture of the financial sector in Greece will be completely different from today even after the crisis. They will have entirely different lending policies and very different performance in emerging markets.
    The Executive Director of the National Bank of Greece Apostolos Tamvakakis forecasts that 2012 will be the hardest year for Greek banks in their entire history. "It is not just about a challenge but about a struggle for survival, the outcome of which will determine whether the Greek banks will be able to support an economy stuck in a growing recession," he notes. The head of Piraeus Bank Michalis Sallas uses the verb "hit" to determine the effect of the debt cut and the verification of Black Rock Solutions on Greek banks.
    Very interesting is the situation in the insurance sector in Greece, which is also "hit" by the voluntary involvement of private creditors in the Greek debt haircut. In addition, the enforcement of the Solvency II Directive, which is expected not later than 2014, will cause serious adjustments in the sector. In the case of a 50-per cent haircut on Greek securities, insurance companies will lose about 2 billion euro and in the case of a higher haircut, losses will be even more significant. They will have to be covered by increase in their capitalization or by the entry of strategic investors - an option that is considered extremely difficult given the present state of the financial sector not only in the eurozone, but also throughout the world. Experts believe that insurance companies are more interested in buying insurance and records of customers, rather than whole companies.
    Solvency II puts even greater demands on the capitalization of insurance companies. Those, which manage to survive the PSI, will have to immediately adjust to meet these new requirements and mergers will be inevitable then.

 

Tags: PSIBlack Rock SolutionsGreek banksAthens Stock ExchangeInsurance companiesHaircutIMF
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