17 October 2011 Last updated at 07:35 ET

Banks bristle at Greek haircut plan

By Stephen Evans BBC News, Berlin

German markets fear that losses on Greek debt may increase hugely

There is now a major lobbying operation under way. The banks that lent to Greece are suddenly worried that a deal they thought was done is in the process of being undone - and a new and bigger bill is heading their way.

In July, Greece's creditors agreed - voluntarily, they point out - on a 21% write-down of their debt - the so-called haircut. In other words, they accepted that for every dollar or euro they had lent to the Greek government, they might get back 79 cents.

But over the weekend, German finance minister Wolfgang Schaeuble indicated that the deal would need to be revisited. He said that private holders of Greek bonds might well have to endure bigger losses than the previously agreed figure.

Mr Schaeuble declined to put a figure on it, but the banks fear that the new number might be 50% - for every euro they lent, they get back half.

The German government's position is that there can be no firm calculation until the "troika" of inspectors from the European Central Bank, European Union and IMF have done their assessment.

This has put the banks into lobbying overdrive. The chief executive of Deutsche Bank, Josef Ackermann, is leading the effort, wearing primarily his hat as the chairman of the Institute of International Finance (IIF) rather than that of the top man at one of the world's biggest banks (though this can't diminish his clout either).

The IIF, with its humdrum title, may sound like a dull professional body. But as the trade association of 450 of the world's top financial institutions, it wields the kind of financial power that many nations can only dream about

The word from the top of the banking industry in Germany is that banks feel "comfortable" with the deal already done - and that they would feel uncomfortable with anything that was forced on them beyond that.

Banks at bay

The banks make a raft of arguments:

• that re-opening the deal made in July might do more harm than good;
• that the deal represented significant concessions made by banks on a voluntary basis;
• that imposing bigger write-downs would be seen as a default by Greece, so triggering other bad events on the markets, like insurance claims against such a default;
• not to mention fears that Italy and Spain might be next.

The banks have some cards to play. Firstly, political leaders are desperate for a solution to this crisis, and one that contains it before it reaches Italy - so a bankers' veto would be very difficult.

But on the other hand, the politics seems to be turning against banks, with evidence of anger on the streets (from Occupy Wall Street to Occupy Frankfurt) and sympathy from some leaders (according to President Barack Obama, the protests represent a "broad frustration about how our financial system works").

The banks aren't just lobbying hard on the rising cost of a Greek settlement to them, but also about rules which governments, particularly the German government, want to impose so that they strengthen their financial base, all the better to ride the rough times.

That's recapitalisation, as it is termed in the jargon of the industry; putting something away for a rainy day, in the jargon outside the industry.

Last week in Berlin, Josef Ackermann said that forcing banks to recapitalise might well make them rein in their lending, so slowing down the financial system.

But the German government is adamant that some of the burden - more of the burden - must be shouldered by banks. Who will blink?