Greek Default Looms; Markets Hold Steady

Such woes, added to the increased prominence of talk about a Greek default, and a lack of confidence in G20 assertions that member nations would take whatever steps were necessary to reassure markets as the euro zone strengthened its bailout fund, made the day promise to be a down ending on an already troubled week.

Greek Finance Minister Evangelos Venizelos was quoted by two newspapers, according to the report, saying that a 50% haircut for bondholders was one of three likely scenarios to address Greece’s financial situation. He also called those newspaper reports an unhelpful distraction.

Klaas Knot, a member of the European Central Bank governing council, openly addressed the subject, the first time an ECB policymaker has done so. In the Dutch daily Het Financieele Dagblad, he was quoted saying, “It is one of the scenarios. I’m not saying that Greece will not go bankrupt. All efforts are aimed at preventing this, but I am now less certain in excluding a bankruptcy than I was a few months ago.” He added that he wondered “whether the Greeks realize how serious the situation is.”

The dismissal of G20 words as hollow was widespread. Andrew Lim, banks analyst at Espirito Santo, was quoted saying, “It’s the usual platitudes … but they don’t have the political capital to do what they need to do, which is bail out the southern European countries and recap all the banks. I think it’s a complete nonsense. The short-term funding market is dying for some banks, and the wholesale funding market has also pretty much dried up.”

He pointed out that French, Italian and Spanish banks were all at risk, and although some daring bargain-hunters were going long-only for the sector, most others, including hedge funds, were sitting it out.