Looking for motives so that investors can accept the haircut

The almost uncontrolled spread of the debt crisis in the Eurozone, which coincides with the start of negotiations on PSI implementation, is creating second thoughts about the conditions that will be included in the final agreement and will determine the amount of capital that Greek banks will need to cover losses.

At a meeting today between Finance Minister Mr. Evangelos Venizelos and the heads of Greek banks, an initial debate took place by Mr. Venizelos, in contrast to the aggressive policy that had been adopted against banks lately. The debate was very mild.

Reportedly, the return of PM Mr. Lucas Papademos from his first trip to Brussels and Frankfurt, accompanied by the possibility of alternative proposals on the PSI implementation, had an effect.

The primary goal remains the voluntary participation of the private sector. Both the government and European officials seem to recognize that the height of the cut at 50% involves large capital losses and may make a voluntary contribution uncertain. Therefore, in order to ensure major participation, both voluntary and otherwise, all solutions  are being considered, including motives for individuals to accept the bond haircut.

Although the debate is just the beginning and no conditions or details have been set, the feeling creates a certain sense of positivity for the final outcome. According to stakeholders, the PSI will probably require more time; it is not impossible to shift towards the outcome being decided in January 2012.

That is why the losses estimate from PSI will not be included in the third-quarter results of banks, which will be announced next week.