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26 Mar 2013
Forex Flash: The Troika is not the united front it previously was - BBH
FXstreet.com (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman believes that the Troika is not the united front that it previously was.
He feels that the Cypriot crisis has brought this issue to the surface and many now share our insight. He notes that the The EC would seemingly be content for Europe to deal with the issue alone, which is easy enough after the IMF has generally assumed the funding of roughly a third of the aid packages. Further, he adds that Germany, which initially did not want to include the IMF, now see it as an ally. The ECB has shown itself to be willing to use the leverage it has (such as granting Emergency Lending Aid by the national central banks and definition of acceptable collateral) to pursue its interests.
Additionally, he notes that Germany and the IMF have long wanted to increase the private sector burden sharing when aid is needed. Brussels has been a reluctant party but Chandler notes that Berlin and the IMF are starting to win the fight. He highlights that there is an established order of seniority (in practice if not law) for cases of insolvency. He writes, “In Cyprus, the initial plan, proposed by the newly elected Cypriot President, and agreed to by the Troika and Germany, was a violation of this by taxing small depositors while equity investors and unsecured creditors were kept whole. However, the new plan exempts small depositors and hits shareholders, bondholders and uninsured depositors. European officials seem to have greater confidence increasing the role of the private sector aid programs.”
He feels that the Cypriot crisis has brought this issue to the surface and many now share our insight. He notes that the The EC would seemingly be content for Europe to deal with the issue alone, which is easy enough after the IMF has generally assumed the funding of roughly a third of the aid packages. Further, he adds that Germany, which initially did not want to include the IMF, now see it as an ally. The ECB has shown itself to be willing to use the leverage it has (such as granting Emergency Lending Aid by the national central banks and definition of acceptable collateral) to pursue its interests.
Additionally, he notes that Germany and the IMF have long wanted to increase the private sector burden sharing when aid is needed. Brussels has been a reluctant party but Chandler notes that Berlin and the IMF are starting to win the fight. He highlights that there is an established order of seniority (in practice if not law) for cases of insolvency. He writes, “In Cyprus, the initial plan, proposed by the newly elected Cypriot President, and agreed to by the Troika and Germany, was a violation of this by taxing small depositors while equity investors and unsecured creditors were kept whole. However, the new plan exempts small depositors and hits shareholders, bondholders and uninsured depositors. European officials seem to have greater confidence increasing the role of the private sector aid programs.”