International Bankers: Voluntary Private Sector Aid to Greece Has Limits

Charles Dallara, Director of the Institute of International Finance (IIF), speaks during a meeting of the IIF institue in Cancun, Mexico, 21 March 2010. EPA/BGNES

Charles Dallara, head of international banking lobby group, the Institute of International Finance (IIF), has spoken unenthusiastically about the euro zone push to get the private sector to share the burden on Greece's debt.

Dallara warned Monday that a non-voluntary deal on the private sector contribution to Greece's debt would cause "severe contagion" effects that would hit European growth and jobs, as cited by Dow Jones and The Wall Street Journal.

Reacting to the weekend decision by the euro zone to push for a "higher private sector haircut on Greek debt", Dallara said there are "limits" to what can be considered a voluntary agreement.

"Any approach that is not based on cooperative discussions and involves unilateral actions would be tantamount to default, would isolate the Greek economy from international capital markets for many years, and would impose a harsh burden on the Greek people as well as European taxpayers who have already done a lot to support Greece," he said in a statement, adding,

"It would also likely have severe contagion effects, which would cost the European and the world economy dearly in terms of employment and growth."

Dallara confirmed he was still in Brussels negotiating with the euro zone. A European Union official said Dallara met Monday morning with Vittorio Grilli, the head of the euro zone's working group who is the negotiater with the banks.

Dallara said the IIF remains in constant contact with Greek authorities and banks and remains "committed to the search for constructive solutions."

Over the weekend, the euro zone decided to push for a private sector writedown of Greek bondholders significantly larger than what was agreed in July. Officials said Sunday the likely writedown the euro zone wanted was in the 50% range.

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