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IMF experts believe European banks heavily undercapitalized!

Christine Lagarde and her team believe that European banks could need € 200 billion...

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According the International Monetary Fund (IMF) experts, the provisions made by European banks on held Greek bonds have been largely underestimated and the 21% discount is too low. Worse, if the European banks took into account the market value of the European bonds they hold, they should spend 200 billion euros in provisions.

Enough to give a headache to European bankers, who think these tests, are unnecessarily alarmist. For them, it would be better to stick to the plan adopted in Europe in July. And this plan does stipulate a 21% discount. "Only two months ago, Ms. Lagarde finance minister then, estimated that French banks were the best in the world. Once she step foot in Washington, she believes that we urgently need to recapitalize, what an amazing schizophrenia case", said a banker in Paris who struggles to understand the calculations made by the Monetary Fund’s analysts.

Nevertheless, situation in Greece has dangerously deteriorated, while the plan established by EU still needs approval by parliamentarians from each member country and has not yet been voted. Chances are the terms of agreement will soon be obsolete.

In addition to that, an IMF/EU inspection mission related source has revealed that Greece will miss its fiscal target for 2011 of at least one percent and that its privatization plan, which is the other requirement by international creditors in exchange for funding, is uncertain. According to forecasted figures, Greece budget deficit for 2011 should be at least 8.6% of gross domestic product (GDP) against a 7.6% target.

Next Finance , September 2011

Article also available in : English EN | français FR

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