Yesterday (20 June), the German Banking Federation issued a statement demanding better incentives before exposed banks are asked to extend repayments on their existing Greek debt with no strings attached.
The banks' reaction comes on the back of a political agreement struck between EU finance ministers at the weekend to encourage banks which hold Greek bonds due for repayment in the next three years to lengthen their exposure and buy bonds with a longer maturity.
The plan, dubbed 'Vienna plus' and modelled on the 2009 Vienna Initiative, has riled banks in Germany which, alongside French banks, are the most exposed to Greek sovereign bonds. Such a plan is seen as the cornerstone of any new rescue package for Greece.
In a carefully-worded statement, the German banking lobby said "the voluntary roll-overs are necessary to prevent the risk of contagion. Additional incentives, like preferred creditor status or additional guarantees, would help solve Greece's problems just as much as a political consensus on national reforms".
Greece is currently in the throes of a political crisis as its parliament is withholding support for austerity measures needed to guarantee an additional EU bailout package to the tune of €120 billion.
According to research conducted by Barclays, 95% of Greek debt is held within the euro zone by European banks.
Evolution Securities, an investment bank, carried out research estimating that Fortis, Dexia and SocGen have the highest exposure to possible haircuts. Barclays would be the biggest UK lender to be hit, with possible losses of 4.6 billion euros, while bailed out German lenders Hypo Real Estate and Depfa are together exposed to a total of 6.3 billion euros.
Sources in Brussels indicate that only very large banks and bailed-out lenders susceptible to government pressure and regulation will be hit by possible rollovers, while hedge funds will be let off the hook.
"There is no reason for hedge funds to agree to a rollover," said Sony Kapoor, founder of the Re-define think-tank.
Kapoor warns of a risk that Greek bonds will migrate to hedge funds and private equity groups as banks attempt to avoid an extension on the debt.
A spokesperson for the hedge fund industry insisted that fund exposure to Greek debt was comparatively low compared with banks, and that comments to the contrary stemmed from a growing political plot against fund traders.
"It is a red herring that hedge funds are heavily invested in the Greek crisis or have large exposures there," an anonymous industry representative said.
Claire Davenport
