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October 25, 2011 at 09:37 AM
Eurozone taxpayers could be on the hook for more than 40 billion euros ($55 billion) if banks are compelled to take hefty write-downs on Greek debt—a measure banks are fighting even as officials try to convince them to accept massive cuts voluntarily.
If banks are forced to accept the big cuts, a banking trade organization said it would be “tantamount to default”—and citizens could be footing the bill not just for bonds, but also for 47 billion euros in bilateral loans that share the same seniority level as Greece’s bonds.
Bloomberg reported Tuesday that discussions in the European Union summit meetings held over the weekend and set to continue Wednesday are considering a number of options to save Greece from default and the eurozone from contagion. One of those options is a write-down of debt by banks in far larger amounts than in the second rescue deal brokered for Greece in July. That arrangement called for a 21% write-down; banks accepted that, but are fighting amounts called for in the wake of troika inspections of Greece’s finances in October, which found the country to be considerably worse off than previously believed.
Now officials are talking about write-downs of 50-60% in value, amounts that banks are fighting and calling anything but voluntary. If banks are forced to accept the arrangement, euro nation taxpayers will be obligated for what amounts to 100 euros for every man, woman, and child for the bilateral loans offered just 18 months ago.
