Heated debate on the contagion of Greek sovereign debt came to a head on the night of 26-27 October. The EU members’ Heads of State or Government produced a thorough and multi-faceted way-forward. A number of details are yet to be ironed out, however, international markets have responded well. will be secured on three main pillars. Namely the increase of banks’ solvency reserves, or minimum Tier 1 capital, from 4% to 9% by June 2012, the voluntary discount of 50% by private banks on their Greek sovereign debt exposure and the endeavouring to raise the EU’s bailout fund, the European Financial Stability Facility, from €250bn up to €1,000bn, from foreign direct investment.
The Hon. Dr. Lawrence Gonzi, Prime Minister of Malta, has lauded the Community’s bold initiatives to stabilise the region. The rescue plan will require only minimal changes to be made by Maltese banks. Mr. Josef Bonnici, Malta’s Central Bank Governor, has explained local banks will not be negatively impacted by the 50% voluntary discount on account of their extremely limited exposure to Greek debt. Further, Maltese banks at present maintain a Tier 1 capital which is above the newly declared minimum threshold of 9%; a Tier 1 capital ratio far above the current minimum of 4%. The Hon. Mr. Tonio Fenech, Malta’s Minister of Finance, The Economy and Investment, has corroborated these claims. The positive news coming out of Malta is supported by the European Banking Authority, which declared Maltese banks are in a sound position to even resist the unlikely event of fresh sovereign debt trouble. Standard & Poor has emphasised Malta’s strong political and economic credentials, confirming its AA1 credit rating during the ongoing rescue plan negotiations.