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May 18, 2022

Bankers prepare for Greek default

Merkel: Allowing Greece to default on its debt now would destroy investor confidence in the euro zone.

Bankers are expecting Greece’s insolvency, and their best hope is that Europe can help the banking system soon enough to prevent the crisis from spreading to other euro-zone countries, Mediafax informs, quoting Reuters.

Bankers from major financial institutions met at a conference on the sidelines of the International Monetary Fund/World Bank sessions. The biggest fear is that Greece defaulting on its EUR 340 bln in government debt would trigger widespread selling of euro-zone debt causing a much broader financial crisis. European officials were discussing ways to strengthen their EUR 440 bln European Financial Stability Fund, possibly leveraging it to the tune of EUR 1-2 trillion. Bankers at the meetings welcomed these discussions to ring-fence the financial system from a disorderly Greek default. Domenico Lombardi, a former IMF official now at the Brookings Institution, said it certainly is needed. Allowing Greece to default on its debt now would destroy investor confidence in the euro zone and might spark contagion like that experienced after the bankruptcy of Lehman Brothers in 2008, German Chancellor Angela Merkel said on Sunday.

During meetings at the International Monetary Fund (IMF), where China was widely seen as an answer to the euro zone’s problems, Gao Xiqing, vice chairman, president of China Investment Corp., said: “We can’t just go save someone. We’re not saviors. We have to save ourselves.”

Investors have so far been unimpressed with the speed at which policymakers have dealt with the eurozone debt crisis, and analysts say that action, not words, are needed to calm volatile stock markets, BBC informs.

European markets fell at the start of trade on Monday but then rallied. By lunchtime, Germany’s Dax index and France’s Cac 40 were both up more than 3 pc. After talks with IMF chief Christine Lagarde, Greek Finance Minister Evangelos Venizelos said that Athens would do “whatever it takes” to reduce its huge level of debt, which is currently about 160 pc of the country’s gross domestic product. Also, a group of 2000 Greek students have interrupted, on Sunday, the state television news, as police used tear gas against another group of protesters near parliament.

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