So the PSI negotiators are in with their bosses, discussing further haircuts. Bank equity holders haven’t realized it, but the banks are now being run by the Troika. When you rely on them for all your money, for supporting your positions, and being a backstop for capital, you have little choice but to listen to them. What is the best way to cover any funding gap? Every 5% extra haircut from PSI is about 10 billion euros, and the interest on that.
Can the dynamic duo of the IIF really agree to bigger haircuts? Sure, they can agree to anything they want on behalf of the banks, but the rest of the private sector (those that still rely on performance and reputation to borrow money, raise capital, pay bonuses, etc.) may have a lot to say about any new deal.
And as I have pointed out over and over, anything you agree to at 2 am tends to have been not well thought out and often causes more problems than it was worth – though at the time it seemed like a great idea