Banks Push Back Against Greek Debt Cuts

As hard at work as the European Union has been on its plan to save the European economy from a disastrous meltdown, at least a couple of the provisions in its current strategy are meeting with strong resistance from European banks.

Proposed write-downs of 50% or more have taken the place of previously agreed-upon cuts of 21% in the value of Greek sovereign debt, and the banks are voicing their disapproval. They are also opposed to another provision: beefing up the capitalization of banks against the possibility of further tough times.

According to a Sunday Bloomberg report, Josef Ackermann, head of Deutsche Bank and top lobbyist for the biggest financial firms in the world via the Institute for International Finance, will head to Brussels this week to present those objections in person to EU officials. He has already said it would be “counterproductive” to compel banks to boost their capital, and that it would be tough to get investors to accept higher write-downs of debt.

With the clock ticking on the EU to complete a plan to address debt contagion, bank opposition could stymie efforts by French President Nicolas Sarkozy and German Chancellor Angela Merkel to push through a finished strategy by the time of the October 23 meeting of European leaders.

Christopher Wheeler, a London-based analyst with Mediobanca, was quoted in the report commenting, “What’s most depressing about this whole thing is the squabbling between politicians, regulators and banks. Banks have to take positive action alongside the EU to find a solution, which is a combination of dealing with sovereigns as well as capital concerns.” He said that compromise is in the best interest of the banks.