Bloomberg News

Greek Creditor Treatment Raises Contagion Risk, BNP Paribas Says

October 28, 2011

Oct. 28 (Bloomberg) -- The euro-area agreement that Greek bondholders should incur a 50 percent writedown on their securities risks driving up borrowing costs for the region’s weaker nations, according to BNP Paribas SA.

“We are concerned that reassurances about Greece being a one-off may be discounted by some in the market,” analysts including Cyril Beuzit, head of interest-rate strategy in London, wrote in an investor report dated yesterday. “The tough treatment of Greece’s creditors increases contagion risks.”

European officials ended all-night talks in Brussels yesterday with an agreement to recapitalize banks, boost the euro-area rescue fund and deliver additional financial support to Greece. The measures became necessary as concern rose that an initial program for Greece wouldn’t be sufficient to bring its debt under control and yields rose on other so-called peripheral nations’ bonds, including Italy’s and Spain’s.

The Greek deal shows the International Monetary Fund and the European Union are unlikely to write down any support given to beleaguered nations, so the risk of losses falls on private owners of those nations’ bonds, the BNP Paribas strategists wrote. “The net result is a significant rise in the risk premium the market will demand to fund other peripherals.”

There are also remaining details on the Greek bond agreement to be determined, the analysts said. The announcement after the summit “hints at the whole outstanding of Greek government bonds” being included in the arrangement, more than were included in a previous accord, and an earlier plan for a debt buyback operation might no longer be “on the table,” they wrote.

--Editors: Matthew Brown, James Kraus

To contact the reporter on this story: Paul Dobson in London at

To contact the editor responsible for this story: Daniel Tilles at

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