October 27, 2011
A plan to impose bigger losses on private holders of Greek bonds will place further strain on a Greek banking system that is already struggling to staunch a quickening outflow of deposits.
The plan will result in billions of euros in additional writedowns for Greece’s banks, which are big holders of government bonds.
Some observers worry that this could deepen fears about the banking system’s health, accelerating what they describe as a “slow-motion” run over the past 18 months as nervous customers drain accounts.
An estimated €9.5bn ($13.5bn) – amounting to 5 per cent of deposits – was withdrawn from Greek banks in the six weeks to mid-October. That comes on top of a 14 per cent fall in deposits in 2010, according to central bank figures.
While a voluntary haircut of 50 per cent will trim Greece’s debt load, it will put extra pressure on the country’s banks, which are suffering in the recession.