Some of the most important bankers present at the Davos World Economic Forum are increasingly optimistic about the chances of solving the crisis in the euro area and trust that the debt default of Greece, which seems inevitable, will be an orderly one. Participants in a private meeting at the World Economic Forum in Davos, among which there were the CEOs of JP Morgan Chase, Barclays, Citigroup and UBS, have recognized that significant progress has been made.
Most of them mentioned the launch by the European Central Bank (ECB) last month of cheap loans for three years, worth almost 500 billion euros, as a possible turning point, after almost three years of chaos on financial markets which has undermined some of the largest players in the financial sector. “The year 2011 was one of major concerns about the risks of sovereign debt. We feel now more comfortable because progress has been made”, said general manager of Barclays, Bob Diamond. He said that there is a general attitude of caution, given the difficulties facing the euro area.
But bankers have appreciated the progress made in fiscal union of the euro area and in solving the problems of funding and liquidity of European banks with cheap money from the central bank. “The injection of the three-year loans by ECB was an important factor, which eliminated a major risk related to banks’ liquidity”, said JP Morgan chief Jamie Dimon. He said he sees zero risk to the solvency of banks involved in the crisis in Greece, even if the situation will trigger debt insurance contracts (CDS).
Negotiations with private creditors of Greece entered a new phase on Thursday, attention is focused on the possible contribution of the ECB and other public financing to reduce debt. Bankers hope that the crisis in Greece is seen increasingly as an isolated case within the euro area, which will be resolved through an orderly default, Diamond said. “There was a consensus in discussions that there will be an orderly default of Greece. The rest of the euro area is not a great reason for concern”, said general manager of a large Swiss bank.
Despite signs of optimism, American bankers are still more cautious on the outlook of the euro area. “Americans are the most pessimistic. They don’t really understand how the euro area works”, said a head of a large euro area bank. Among the participants in the discussion were also found head of Prudential, Tidjane Thiam, Borins Collard from Julius Baer, Brady Dougan of Credit Suisse, and Director of Intensa Sanpaolo, Enrico Cuchiani.
