Banks Dig in , But what will the ECB do regarding Greece ?

http://www.athensnews.gr/portal/11/52605

BNP says no more ground to give in Greek talks

25 Jan 2012

Chairman Baudouin Prot of BNP Paribas, of France, attends a session at the World Economic Forum (WEF) in Davos (Reuters) Financial markets' sentiment towards the eurozone may have turned the corner, but banks will offer no more concessions in crucial talks to reduce Greece's private sector debt, BNP Paribas chairman Baudouin Prot said on Wednesday.   He said the European Central Bank's move to flood the banking sector with almost half a trillion euros in short-term loans had helped to change the mood.   "I am a cautious optimist," Prot told Reuters at the World Economic Forum in Davos.   "We are starting to see signs of a shift in sentiment towards Europe. The ECB three-year financing facility was really a catalyst. We are on the right track, but we need to keep moving forward."   Greece is hoping to wrap up tortuous negotiations this week on a bond swap that aims to knock 100bn euros off its debt burden when private creditors return to Athens for a fresh round of talks to avert a chaotic default.   After weeks of bargaining, deadlocks and an intervention by eurozone ministers, Greece and its bondholders find themselves back at the drawing board as they search for a compromise needed to clinch a bailout for Athens before it runs out of money.   The focus of a new round of talks is expected to be whether banks budge from what they have billed as their "final offer" of a 4 percent coupon on the new bonds that Greece will swap out for existing debt after euro zone finance ministers rejected that proposal.   "The offer that is now on the table is the maximum acceptable for a voluntary deal," Prot said. "All the elements are now in place. I hope the discussion in the next few days will enable all parties to reach a constructive agreement." and compare...... http://www.businessinsider.com/the-ecb-is-despairing-about-how-to-deal-with-the-greek-debt-debacle-2012-1 A few smooth words from Christine Lagarde, and public sector involvement in the Greek bailout is suddenly a topic of conversation among Europe's political elite. We've argued that this is a positive development in crisis response, but it comes as no surprise to hear that the European Central Bank is despairing over it. According to sources cited by Reuters, however, the Bank is becoming more and more convinced that this possibility will become a reality. Many national central banks (which together foot the bill for the ECB) have even begun to think that they will be unable to avoid losses in a Greek debt restructuring. From that Reuters report: "The ECB will not take losses on its Greek bond holdings voluntarily ... but there is a fierce debate within the ECB on how to handle forced losses," the source said. Another source said the bank was holding regular talks on Wednesday and Thursday and aimed to hammer out its position on the losses it should or should not be willing to take on its Greek bonds. The ECB declined to comment. The ECB has an estimated €40-45 billion ($52-59 billion) in Greek debt holdings, and is Greece's single largest creditor. We've been writing about the futility of efforts to avoid a credit event in Greece for a long time, particularly because the size of the Greek CDS market is small and some of its effects have already been priced in. So we have to ask, what's it going to be, ECB: credit event or taking losses on Greece? Regardless of the seeming polarity of choices the ECB has here, investors are skeptical that the central bank will go down without a fight. "If you're big enough, you can walk like a duck and not be a duck," said Ari Bergmann, Managing Principal at Penso Advisers LLC at a conference sponsored by Bloomberg Link yesterday, suggesting that Greece could be too big to trigger CDS contracts. "[When we wrote our first soverign CDS contract] we wrote then that there are 10 to 20 ways of defaulting without triggering a default."