Index.php

From Joe

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The International Monetary Fund (IMF) and what is now known as the World Bank, were set up to manage the post-World War II global economy.
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The banking industry has described its agreement with Greece to cut its debts as "unprecedented".
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They were conceived in 1944 at a conference in Bretton Woods, in the US state of New Hampshire.
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A group of banks and other investors in Greek government debt have agreed to exchange their debt for new bonds that are worth much less and pay a modest rate of interest.
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By fostering economic cooperation and helping countries with balance of payments problems the founders hoped to avoid a repeat of the 1930s Great Depression.
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Including the reduced interest rate, the losses to the banking industry are more than 70%.
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The IMF aims to preserve economic stability and to tackle - or ideally prevent - financial crises. Over time, its focus has switched to the developing world.
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For some of Europe's biggest banks, that means heavy losses.
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The World Bank's predecessor - the International Bank for Reconstruction and Development - was set up to drive post-war recovery.
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"The losses are going to be substantial, but they are contained and there's a longer-term benefit for the system in having a core group of investors sit down across the table and coming together," said Charles Dallara, managing director of the Institute for International Finance, which negotiated on behalf of the banking industry.
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Continue reading the main story
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�Start Quote
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Now, it is the world's leading development organisation, working for growth and poverty reduction.
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    In the long and tawdry history of governments borrowing more than they can afford, this represents a remarkably huge, unprecedented write-off�
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Owned by the governments of its 187 member states, the Bank channels loans and grants and advises low and middle-income countries.
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image of Robert Peston Robert Peston Business editor, BBC News
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The IMF is funded by a charge - known as a "quota" - paid by member nations. The quota is based on a country's wealth and it determines voting power within the organisation; those making higher contributions have greater voting rights.
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    More from Robert
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The IMF acts as a lender of last resort, disbursing its foreign exchange reserves for short periods to any member in difficulties.
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It is perhaps no great surprise that Greek banks are the most exposed to Greek debt.
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Since they were conceived, the IMF has been run by a European and the World Bank by a US national.
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According to Barclays Capital, the top two holders of Greek debt are National Bank of Greece, with 13.2bn euros ($17.5bn), and Eurobank EFG, which holds 7.3bn euros ($9.7bn).
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The IMF and the Bank have served as a rallying point for disparate causes - from environmentalists to anarchists - and meetings have occasionally been accompanied by violent street protests.
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Once the bond exchange is completed, those holdings will be worth less than half their current value, and if you include future interest payments, worth 70% less.
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Protesters and critics cite the exploitation of the poor and the environment and argue that freer trade threatens the livelihoods of millions of people.
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Outside Greece, French and German banks hold the most Greek debt.
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The last bailout?
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The IMF has admitted that forcing developing countries to open their markets to foreign investors can increase the risk of financial crises.
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Many foreign banks have already accepted that their investments in Greece are now worth just a fraction of their original value, irrespective of the latest deal.
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Its former managing director Horst Koehler said in 2002 that the benefits of globalisation had not been equally shared. But he added that "the objective should not be less globalisation but more and better globalisation."
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In its most recent set of results, France's BNP Paribas, the biggest owner of Greek debt outside Greece, said that it had written down the value of its Greek debt by 75% on its balance sheet.
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And according to the Barclays report, Commerzbank is the biggest holder of Greek debt among Germany's banks. Its holdings of government debt have complicated its efforts to raise new finance to boost its balance sheet.
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For the average investors, the effect of Tuesday's bailout is limited. Most insurance companies and investment firms have little or no exposure to Greece.
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Some hedge funds have built up their holdings in Greek debt, but it is likely to be a relatively small amount, perhaps less than five billion euros.
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It is thought some will refuse to sign up to the bailout deal and hope to be repaid in full.
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Analysts are now wondering whether the latest deal will be enough. The Greek economy is in recession, making it even more difficult for the nation to pay its debts.
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"The debt sustainability analysis is much worse than people were expecting," said Laurent Fransolet, head of fixed-income strategy research at Barclays Capital.
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"It's ambitious and we cannot be sure this is the last bailout. Does it buy a bit more time? Yes. But the next one will have to involve the official sector much more."

Revision as of 00:04, 15 October 2012

The banking industry has described its agreement with Greece to cut its debts as "unprecedented".

A group of banks and other investors in Greek government debt have agreed to exchange their debt for new bonds that are worth much less and pay a modest rate of interest.

Including the reduced interest rate, the losses to the banking industry are more than 70%.

For some of Europe's biggest banks, that means heavy losses.

"The losses are going to be substantial, but they are contained and there's a longer-term benefit for the system in having a core group of investors sit down across the table and coming together," said Charles Dallara, managing director of the Institute for International Finance, which negotiated on behalf of the banking industry. Continue reading the main story �Start Quote 

   In the long and tawdry history of governments borrowing more than they can afford, this represents a remarkably huge, unprecedented write-off�

image of Robert Peston Robert Peston Business editor, BBC News 

   More from Robert

It is perhaps no great surprise that Greek banks are the most exposed to Greek debt.

According to Barclays Capital, the top two holders of Greek debt are National Bank of Greece, with 13.2bn euros ($17.5bn), and Eurobank EFG, which holds 7.3bn euros ($9.7bn).

Once the bond exchange is completed, those holdings will be worth less than half their current value, and if you include future interest payments, worth 70% less.

Outside Greece, French and German banks hold the most Greek debt. The last bailout?

Many foreign banks have already accepted that their investments in Greece are now worth just a fraction of their original value, irrespective of the latest deal.

In its most recent set of results, France's BNP Paribas, the biggest owner of Greek debt outside Greece, said that it had written down the value of its Greek debt by 75% on its balance sheet.

And according to the Barclays report, Commerzbank is the biggest holder of Greek debt among Germany's banks. Its holdings of government debt have complicated its efforts to raise new finance to boost its balance sheet.

For the average investors, the effect of Tuesday's bailout is limited. Most insurance companies and investment firms have little or no exposure to Greece.

Some hedge funds have built up their holdings in Greek debt, but it is likely to be a relatively small amount, perhaps less than five billion euros.

It is thought some will refuse to sign up to the bailout deal and hope to be repaid in full.

Analysts are now wondering whether the latest deal will be enough. The Greek economy is in recession, making it even more difficult for the nation to pay its debts.

"The debt sustainability analysis is much worse than people were expecting," said Laurent Fransolet, head of fixed-income strategy research at Barclays Capital.

"It's ambitious and we cannot be sure this is the last bailout. Does it buy a bit more time? Yes. But the next one will have to involve the official sector much more."

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