Europe’s banks and leaders fight over Greek bond haircut but investors still see buying opportunities

24th October 2011

As the Telegraph reports, the IMF wants lenders to take a 60 per cent haircut on Greek bonds and European politicians are reportedly demanding a 50 per cent haircut.

The banks argument is that anything more than 40 per cent risks triggering a credit event, i.e. they would trigger reliance on credit default swaps which could trigger a wider crisis of confidence.

However, it does appear that Germany has won last week's argument with France. The European Central Bank will not be used to boost the firepower of the European Financial Stability Facility something France had been lobbying for. It appears that the EFSF will now intervene in sovereign bond markets.

Reporting in the Observer about a joint Angela Merkel Nicolas Sarkozy press conference veteran European journalist David Gow wrote: "Their joint media briefing served only to re-emphasise German domination of the relationship. Merkel, who utterly dominates her own political party at home, ruthlessly shutting out dissenters, now plays or tries to play a similar role in Europe. When her diplomats explain EU policy, it is framed according to German ambitions and interests: above all in the dispute over the ECB's role in enhancing the eurozone bailout fund, the European Financial Stability Fund (EFSF), to prevent contagion from the Greek debt crisis spreading to Spain and Italy and bringing down the whole euro project."

However neither leader is happy with Italy. The following remark from Merkel was clearly aimed at Silvio Berlusconi. "Confidence will only return to financial markets when everyone in Europe puts his house in order", she said.

 Meanwhile Sarkozy, perhaps miffed at losing the argument, bluntly told UK Prime Minister David Cameron to shut up. He said: "You have lost a good opportunity to shut up. We are sick of you criticising us and telling us what to do. You say you hate the euro and now you want to interfere in our meetings."

While the crisis continues, the latest survey shows investors are concerned and yet they also see some buying opportunities in the midst of all the arguments.

Some 22 per cent of active investors say the eurozone is their biggest worry according to trade body the Association of Investment Companies.

However  "Some 42 per cent of active investors are planning to increase their stock market exposure over the next few months, down only 2 per cent from a year ago and significantly higher than the 33 per cent who planned to increase their stockmarket exposure in September 2008 when the financial crisis set in and 53 per cent think now is a good buying opportunity," said AIC communications director Annabel Brodie-Smith.

More from Mindful Money:

European debt crisis: what is the answer?

Capitulation: Are we there yet?

China, EU, UK & US: The re-emergence of stagflation risk and what this means for stocks

A Network of Debt: Why it matters who owns it

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