Private investors in Greek bonds will need to take losses ranging from 40 percent to 60 percent, according to Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies.
“Anything that’s half haircut, plus or minus 10 percent, would be fine,” Wyplosz said in an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “This is hardly surprising. Either the banks got prepared or they got it completely wrong and they will pay a high price for that.”
Greece is in the process of receiving its second bailout from the European Union and International Monetary Fund. Banks pledged in July to participate in a bond exchange and debt buyback program where “all instruments will be priced to produce a 21 percent net present value loss.”
Credit-default swaps prices from data provider CMA imply a 91 percent chance Greece will default within five years, according to a standard pricing model used by credit swaps traders.
European Commission President Jose Barroso proposed measures today to coordinate the recapitalization of banks gripped with large amounts of debt from Greece and other troubled nations, following the work of the European Banking Authority.
Luxembourg Prime Minister Jean-Claude Juncker triggered speculation that so-called haircuts on Greek bonds could exceed 60 percent when interviewed on Austrian television yesterday. Finance ministers are considering reshaping a July deal that foresaw investors contributing 50 billion euros ($69 billion) to a 159 billion-euro rescue.
Juncker, who leads the group of euro-area finance ministers, said through a spokesman yesterday that haircuts on Greece could exceed 21 percent. The statement clarified interpretations of the television interview that losses may exceed 60 percent.