The head of Deutsche Bank warned that if the crisis in Greece spreads to the rest of the euro zone, it could be a bigger disaster than the fall of Lehman Brothers.
Reuters reported that Josef Ackermann, CEO of the bank, speaking at a Monday event, said that anything that might cause the debt crisis to escalate must be avoided. "If it is Greece alone, that's already big. But if other countries are drawn in through contagion, it could be bigger than Lehman," he was quoted saying.
He also cautioned against haste, even as euro zone ministers are scrambling to come up with a means for Greece to evade default, and have called for data on the level of debt held by private creditors by July 3, when finance ministers will assemble. "Political leaders expect a solution by the end of the week, but we should not rush it," Ackermann said. "It is important to have a good solution. The issues are complex and need to be discussed."
While economists lean toward the belief that some kind of restructuring is unavoidable, banks in Europe are struggling to find a way that will not bring down interbank lending in the way Lehman's failure did. Ackermann pointed out, "We see the first signs of a stiffening of the money market."
He also warned that ignorance of who held the most exposure to Greece's credit default swaps (CDS) stood in the way of more drastic action, such as compelling haircuts on the debt. "We don't know whether these are in the hands of only a few players, which could then end up in trouble," he said.
CDS prices are determined in part by the perceived creditworthiness of the borrowers, as well as whether restructuring will be forced or voluntary. While banks have said they are willing to contribute, they insist on solely voluntary measures, and are demanding incentives to participate.
Ackermann said investors were not ready to "throw good money after bad," but added that private bondholders were ready to engage in the process. "It is better for us to have some bleeding than for us to have a complete meltdown," he said in the report. He added that Greece must be given a chance to raise its taxes and sell off privatized assets before investors decide to throw in the towel, adding, "Imbalances that have been built up over 20 years cannot be fixed in a matter of months."