Berlin solidarity pledge in doubt as banks cut Greek exposure

GERMAN BANKS have cut their holdings of Greek government bonds more than previously thought, making it easier for them to participate in any sovereign debt restructuring but casting doubt on a pledge last year to maintain their exposure as a gesture of solidarity.

Details of German lending to Greece, revealed by the Bundesbank, show that a significant proportion of German bank exposure is accounted for by Berlin’s share of last May’s €110 billion rescue package for Athens. German insurers have also cut their holdings of Greek sovereign debt.

The data highlight the complex position for the German government as it presses for a debt restructuring with some form of private sector participation. Berlin is the guarantor of a state “bad bank” to wind down some banking sector assets, leaving it holding more Greek bonds than any German bank as well as playing a key part in official loans to Athens.

German banks had €18 billion of exposure to the Greek public sector at the end of February, the most recent month for which data are available.

But figures suggest that less than €10 billion of this is sovereign debt, compared with sovereign exposure of about €16 billion in May 2010. At that time, German banks pledged to maintain where possible their holdings of Greek bonds and their credit lines to Athens.

The figures suggest that banks have in many cases reduced their Greek exposure.

Of the €18 billion now held by German banks, €8.4 billion is accounted for by loans to Greece channelled through KfW, Germany’s development bank – part of Berlin’s agreed €22.3 billion contribution to last year’s rescue.

The data, which may cast doubt on how effective any voluntary rollover of Greek debt might be, also suggest that French banks are significantly more exposed to Greece than German ones. – (Copyright The Financial Times Ltd 2011)