Greece sees possibility of 50 percent haircut on debt

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By Angeliki Koutantou and Harry Papachristou

ATHENS | Fri Sep 23, 2011 3:32am EDT

ATHENS (Reuters) - Greece's finance minister has told lawmakers he sees three scenarios to resolve the debt crisis, including one involving an orderly default with a 50 percent haircut for bondholders, two Greek newspapers reported on Friday.

A government spokesman dismissed the reports, which said the other scenarios would be a disorderly default or the implementation of a second, 109 billion euro ($146 billion) bailout plan agreed between Greece and its lenders on July 21.

Newspaper Ta Nea, citing a person who heard a speech by Finance Minister Evangelos Venizelos to ruling Socialist party lawmakers, quoted him as saying "it would be dangerous to request" the 50 percent haircut.

He also said: "This would require an agreed and coordinated effort by many," the paper reported.

A finance ministry spokeswoman said she could not comment on the reports, but deputy government spokesman Angelos Tolkas said the government would stick to the bailout plan agreed between Greece and its lenders two months ago.

"What we are choosing is (for Greece) to stay in the heart of Europe by implementing the July 21 decisions," he said. "The big challenge is to avoid any default or collapse."

Two Socialist deputies who said they were present at the speech in which Venizelos tried to rally support among the ruling party for a new wave of austerity measures, denied that he had floated the 50 percent haircut scenario.

"I categorically deny it. There is no such scenario," lawmaker Theodora Tzakri told Reuters.

Venizelos is traveling to Washington for a weekend meeting with inspectors from Greece's lenders, the International Monetary Fund and the European Union.

The reports came as Moody's Investors Service cut the credit ratings of eight Greek banks. It cited a struggling domestic economy and falling deposits among reasons for the move, which markets had expected.

Moody's said the outlooks for all the ratings remained negative. The downgrade concluded a review begun on July 25.

Some European banks in July agreed to contribute to a rescue plan for Greece by taking a 21 percent loss on bonds maturing before 2020.

The deal, which involves banks swapping debt for longer maturity bonds of 15 or 30 years, prompted banks to take a loss on their bonds in second-quarter results.

The European sovereign debt crisis has kept banks hostage to market worries about their capital strength and access to funding.

Earlier this month, Deutsche Bank (DBKGn.DE) Chief Executive Josef Ackermann said many European banks could go under if they had to accept a haircut at current market valuations on their entire sovereign debt holdings instead of the 21 percent writedown that has been proposed on Greek sovereign debt.

($1 = 0.743 Euros)

(Reporting by Angeliki Koutantou; Writing by Michael Winfrey; Editing by Kim Coghill)

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ECB's Knot admits to chance of Greece defaulting
(Reuters) - A situation where Greece cannot pay back its public debt can no longer be excluded, European Central Bank Governing Council member Klaas Knot was quoted as saying on Friday.

Until recently, European leaders have rejected any chance of Greece defaulting, but are moving slowly to allow for the possibility of this happening.

Knot became the first euro zone central banker warning outright of the possibility of a Greek default.

Asked by Dutch daily Het Financieele Dagblad about a Greek default, Knot admitted it was being studied.

"It is one of the scenarios. I'm not saying that Greece will not go bankrupt," he was quoted as saying.

"I've long been convinced that bankruptcy is not necessary. The news from Athens, however, is at times not encouraging."

The Dutch central bank head, who entered office this summer in a controversial appointment, continued by saying European partners had worked hard to help Greece, but faulted the country for not understanding the gravity of the situation.

"All efforts are aimed at preventing this, but I am now less certain in excluding a bankruptcy than I was a few months ago," Knot said, and continued by saying he wonders "whether the Greeks realize how serious the situation is."

Olli Rehn, European Union Economic and Monetary Affairs Commissioner, said on Thursday European leaders will not allow an uncontrolled default of Greek debt and will not let the country leave the euro zone, but did not explicitly rule out the possibility of Greece defaulting, which many economists now see as inevitable.

In a sign of a sharper tone from central bankers, an ECB study, co-authored by Executive Board member Juergen Stark, on Thursday warned the entire euro currency project was now in peril.

The ECB announced last week Stark's resignation from the 17-country bloc's central bank. Sources have told Reuters he left because of his resistance to ECB's bond buying, which Knot also opposes.

(Reporting by Sakari Suoninen; Editing by Andrew Hay)