International estimates of Greek debt cut growing
All the indications from abroad are showing that private sector involvement (PSI) in the second Greek bailout package will be greater than originally planned in July, with estimates ranging from a 40 to 70 percent cut to debts, better known as haircut.
French Finance Ministry sources suggested yesterday that the haircut will be greater than the planned 21 percent and that the Greek entry into ?selective default? status will be manageable.
They did add, however, that the triggering of a credit event would not be an acceptable solution; that would lead to a credit default swap (CDS) payout.
Economics Nobel laureate Christopher Pissarides estimated Greece will avoid a full default, but not a 50 percent haircut, while German banks are preparing for losses of up to 60 percent on the Greek bonds in their portfolios. Swiss bank UBS went a step further, with its analysts proposing a 70 percent haircut, by March 2012 at the latest.
Nevertheless the European Central Bank issued an analysis yesterday warning that ?the application of PSI to a member state could put at risk the financial stability of the eurozone.?
