The Greek Haircut

Not a hairstyle, but it could impact Greek lifestyles

Greek flag

No, it's not the latest Greek hairstyle emanating from Athens. This term refers to the amount of markdown or trimming on Greek debt that debtor banks and others have agreed to accept or may agree to accept in order to ease the Greek financial crisis and, hopefully, to prevent or soften other financial problems for the beleaguered European Union.

The Haircut

An agreement reached in late October 2011 called for a fifty percent haircut, meaning that banks would expect only half of what they had been promised in terms of interest on outstanding Greek debt.

Some called for an even bigger haircut of sixty percent or more, insisting that Greece would need at least that much relief to make the debt manageable and to keep its citizenry content.

The negotiations for the Greek haircut were carried out by the members of ​The Troika, the trio of groups comprised of the European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB).

In 2011, Prime Minister George Papandreou announced that the recently-agreed deal would be subject to a referendum vote, which may put the deal and its "haircut" at risk; many Greeks do not believe the deal is good for Greece, though it is considered to be essential for Greece to continue to be a Euro-based member of the European Union. This announcement was later rescinded in the face of worldwide panic over Greece refusing the terms and led to the collapse of Papandreou's government.

In 2012, an additional Greek Haircut was back on the table under the new coalition government of Greece which took power in June 2012. As of that time, many observers believed that an additional write-down of Greece's debt was imminent, but it was avoided.

In 2013, financial problems in the banking system in Cyprus led to talks of a "haircut" on Cypriot debt as well.

And in late 2013, as Greece struggled with new requirements from the Troika, talk of a "haircut" for Greek debt resurfaced.

Find out about the "Grexit" and more about Greece and Greek Culture.

Examples

Though the parties involved agreed to a fifty-percent haircut on Greek debt, it may not be approved by the Greeks who will have the chance to vote for the deal in an upcoming referendum.

"The depositor "haircut" would be a function of the staggered ELA haircut that the ECB could impose to escalate the rhetoric between the two sides, and could take place with as little as a 10% increase in the ELA collateral haircut from its current 50% level."  -  Financial Times: Greek Banks Considering 30% Haircut On Deposits Over € 8,000: July 3, 2015

"German Chancellor Angela Merkel has, once more, intervened in the Greece bailout crisis by refusing to back a 'haircut' for Greece - debt relief, or the writing-off of part of its debts - despite Germany being given a generous haircut in the years after World War II." - Sputnik International  April 4th, 2016