Europe's bankers fear Brexit more than Grexit

FRANKFURT - Reuters

British Prime Minister David Cameron walks past an EU flag during his visit in Brdo pri Kranju, Slovenia June 18, 2015. Reuters Photo

The possibility of Britain leaving the European Union sometime in the future worries European bankers a great deal more than the prospect that Greece might be on its way out soon. 

Britain's inclusion in the EU is more important to the bloc's long-term future than whatever happens to Greece,  bankers attending a financial industry conference said, even as  last-ditch talks aimed at keeping Greece solvent and avoiding a possible exit from the euro zone rumble on in Brussels. 

"To me, that (Brexit) is the bigger potential nightmare," Tim Adams, president of the Institute of International Finance (IIF), said at the organisation's European meeting in Frankfurt on June 25. 

"The UK is such an important part of the European economy and ecosystem. We have one year of uncertainty hanging over us." 

British Prime Minister David Cameron has promised to renegotiate Britain's relationship with the EU and then hold a vote by the end of 2017 on whether to stay in the bloc or leave. 

Cameron's efforts to start that renegotiation this week have been stymied by Greece, which must persuade its creditors to unlock billions of euros in bailout funds to avoid defaulting on a debt repayment next week. 

"In a mechanical sense, Grexit would disturb the workings and the structure of the European Union more (than Brexit)," said Hans Jaeckel, economist at DZ Bank. 

"But for the spirit and future perspective and meaningfulness of the European Union, Brexit is the bigger risk." 

Moral hazard 
 
The IIF was at the heart of the last major effort to stave off bankruptcy in Greece when its officials, along with senior bankers from BNP Paribas, Deutsche Bank and other lenders, spent months renegotiating the terms of Greece's 130-billion-euro debt mountain. 

In 2012, private investors, including banks, insurers and hedge funds, swallowed 100 billion euros in losses. 

This time around, Greece's creditors are mostly other euro zone governments and public sector organisations such as the International Monetary Fund (IMF). The IIF is not involved in the talks, nor are the banks, who have all slashed their exposure to Greece. 

"We're much better placed for any outcome than we were a few years ago." Ana Botin, chief executive of Spanish bank Santander , told an audience at the IIF meeting. 

A majority of about 200 attendees at one session in Frankfurt indicated with a show of hands that they expected Europe to clinch a deal with Greece. A majority, albeit smaller, also said it was right to do a deal. 

"The proposals by the Greek government over the weekend showed movement from their part and offers specific measures that I think can be the basis for discussion and eventual compromise," said Hung Tran, who as managing director of the IIF was involved in the 2012 debt restructuring. 

But Martin Blessing, chief executive of Commerzbank , which lost nearly 3 billion euros in the 2012 deal, warned against agreement with Greece at any cost. 

"Having a false compromise where in the end you're creating moral hazard for other countries would be the worst solution," Blessing said in an interview with Reuters. 

"The Greek population is voting each day by taking money out of the banks. That is not of course a sign of confidence in the politics that the Greek government is pursuing."