Can eurozone banks be strengthened?

by Robert Peston

BBC News
September 25, 2011

There was progress towards a eurozone rescue deal during the IMF's annual meeting in Washington, according to those present. But they caution that a workable proposal cannot yet be banked.

There were two positive developments.

• First a de facto deadline for agreement on a rescue package was set. This phased deadline will be the European Union council meeting in Brussels at the end of October and the G20 government heads meeting in Cannes at the beginning of November.
• Second, the outlines of the rescue deal, with three main elements, were sketched.

Here are the elements.

Greek haircut

There would be a haircut or writedown of Greek sovereign debt of 50%. This appeared to have been leaked at the end of the week by the Greek Finance Minister, Evangelos Venizelos, as per his reported remarks to Socialist MPs that a 50% "haircut" was the best of three available options.

The Ta Nea newspaper quoted Mr Venizelos as saving: "it is very dangerous for us to ask for it; this requires agreed and co-ordinated effort by many."

For what it's worth, the Greek authorities subsequently denied that such a restructuring of Greek debt is under active consideration, though that's not what European Union officials tell me privately.

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