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rumours are swirling that the haircut private bondholders will be forced to stomach on Greek bonds will be far greater than the 21 per cent previously planned.The newest whispers are about losses of 40-60%, via Dow Jones.
Eurogroup director and Luxembourg PM Jean-Claude Juncker alarmed investors yesterday when he told Austrian television that eurozone countries are “talking about even more” than a 50 to 60 per cent haircut.
Luxembourg government spokesman Guy Schuller clarified today with Bloomberg that Juncker meant that leaders were discussing a haircut greater than the 21 per cent previously expected, not haircuts of more than 60%.
Regardless of this confusion, various news outlets are reporting that haircuts on Greek bonds could amount to double or triple the size previously expected.
This could spell trouble for the fragile European banking system.
Belgian bank Dexia — which ran into funding problems when forced to write off large amounts of Greek debt — has already succumbed to this pressure and turned to French and Belgian governments to stay above water. Guarantees on this bank debt amounted to more than $125 billion.
Larger write-downs on Greek debt could put the stability of other banks in jeopardy, threatening the stability of the European banking system. Infection in multiple larger banks could prove too costly for EU governments to handle.