Eurozone Leaders Anticipate ECB Approval
European Union leaders anticipate the green light from the ECB on its participation in the final agreement in order to decide on how to raise funds for EFSF and cover the refinancing of banks after the extensive haircut of Greek bonds.
The negotiations between bankers and policymakers seem to reach to an agreement, which allows the EFSF to increase its firepower by partial leverage through sovereign (including the IMF) and private funds (with a special fund SPIV).
Capital.gr pointed out yesterday that banks’ refusal to accept a larger than 42% haircut was related to the demand for strengthening the EFSF actual capacity to at least €1 trillion in order to cover recapitalization needs without changes in the current composition of share capital.
This refusal remained in force until yesterday, but diplomatic sources in Luxembourg said "a step towards reconciliation now seems to be possible ..."
The solution includes the extension of Greek PSI that would include debt maturity until 2035 amounting to €210 billion, while the haircut could reach a rate of 48%-52%. The proposal seems to have gained ground, therefore Greek FinMin Evangelos Venizelos has been informed, who in turn briefed Greek bankers yesterday evening.
The finalization of the agreement is expected on Tuesday afternoon, but the approval of the ECB is necessary.
If the ECB rejects the rate or terms of the haircut, then discussion would have to start all over again. But it is estimated that an agreement in such a direction is rather unlikely.
The set up of a SPIV and EFSF leverage through sovereign and private funds leave open the possibility of limited access to indirect borrowing from the ECB. This “loophole” is under examination by the ECB.
In any case, Luxembourg sources noted, even if this specific proposal will not be accepted, there is a counterproposal of EFSF functioning as a guarantee mechanism for troubled economies’ bonds.
(capital.gr)
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