Voluntary Greek debt write-off under pressure

There are some reports from Reuters about the eurozone thinking it might be better to force a default on the banks over Greek debt.

This could be a negotiating ploy – remember, the details of the voluntary debt write-off plan agreed in outline in Brussels last week are not yet nailed down.

Today the German Banking Association said they would not accept any cut in their bond holdings until the Greek referendum result was clear. It might though be more than a negotiating ploy – a sign that the Germans in particular have decided that the thing they have been fire-fighting for months, a default without agreement, might actually be better than the alternative.

The IIF – the folk who represented the banks who hold the bonds in Greece, in the negotiations with the Eurozone leaders – have written to the G20 saying: there will be a contraction of credit in the eurozone as a result of the capital reserves we’ve been asked to keep.

This goes against the eurozone communique from the Brussels summit last week, in which the eurozone leaders said they’d make sure that banks didn’t simply contract in order to meet the capital reserve requirements. It conveys, in case other G20 leaders hadn’t caught a whiff of it already, a whiff of decline, contraction and disagreement in Europe.

Angela Merkel and Nicholas Sarkozy have just started their talks ahead of the dinner with the Greek prime minister. Over in Greece, I hear that the clean-out of senior military yesterday went even further than the heads of the army, navy, air force and general staff. Around a dozen other senior officers were dismissed.

The official claims that this is “normal” seem to be a little wide of the mark, and the shadow defence minister has called the action “undemocratic”. Presumably the government thought the military was about to get a little undemocratic.