26th September 2011

The plan would involve the write down of Greek debt by 50 per but with Greece remaining in the euro. It would also see a quadrupling – from the current projected level of 440bn euros – of Europe's bailout fund, the European Financial Stability Facility (EFSF) which would allow it to lend alongside the European Central Bank.

Steps would also be taken to bolster Europe's banks many of which would be hit by the 50 per cent reduction in the value of their Greek bonds probably through recapitalisation.

The Telegraph gives the following take. It writes: "G20 leaders have come up with a plan to protect the banking system against a Greek default. The details are complicated, but would involve recapitalising the exposed banks so they can absorb the losses without going bankrupt. The scheme has the huge advantage of not requiring endorsement by all the parliaments of eurozone countries. It can be implemented by the European Central Bank unilaterally."

 The Telegraph comment suggests that it may not be the best way to proceed but that the alternative is a disaster.

Stock markets have not reacted positively with the FTSE falling 2 per cent this morning as the Daily Mail reports.

It also notes French denials that its banks will need more capitalisation.

Mindful Money's economics commentator Shaun Richards is concerned that among other things – Europe's politicians seem to think it is going to take six weeks.

But more significantly, he sees strains on any IMF funds, say for example to fund extensive help for Italy.

He also suggests that a Greek default will put huge strains on the European Central Bank, it also owns covered bonds, and of course it relies for its funds on its shareholders, the central banks of the various eurozone countries and sees trouble ahead.

As if to underline the point, Reuters reports that German Deputy Finance Minister Joerg Asmussen is sceptical about helping Greece even in the short term. Speaking on the sidelines of the IMF, he said: "Given the delay of the Troika-Mission (of IMF, ECB and EU Commission). I do not see that the upcoming Eurogroup on October 3rd will decide on the sixth tranche. Solidarity is not a one-way route."

More from Mindful Money:

The logistics of Greece leaving the Euro

No easy answers to our economic problems

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