German banks cut Greek exposure

Financial Times
June 9, 2011

German banks have cut their holdings of Greek government bonds more than previously thought, making it easier for them to participate in any sovereign debt restructuring but casting doubt on a pledge last year to maintain their exposure as a gesture of solidarity.

Details of German lending to Greece, revealed by the Bundesbank, show that a significant proportion of German bank exposure is accounted for by Berlin’s share of last May’s €110bn ($160bn) rescue pack­age for Athens. German insurers have also cut their holdings of Greek sovereign debt.

The data highlight the complex position for the German government as it presses for a debt restructuring with some form of private sector participation. Berlin is the guarantor of a state “bad bank” to wind down some banking sector assets, leaving it holding more Greek bonds than any German bank as well as playing a key part in official loans to Athens.

German banks had €18bn of exposure to the Greek public sector at the end of February, the most recent month for which data are available. But figures suggest that less than €10bn of this is sovereign debt, compared with sovereign exposure of about €16bn in May 2010. At that time, German banks pledged to maintain where possible their holdings of Greek bonds and their credit lines to Athens.

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