The head of the European Central Bank placed a major obstacle on the path to a new agreement on a Greek financial bail-out, saying the bank could not accept defaulted bonds as collateral, potentially cutting off fundng from the Greek banking system.
Jean-Claude Trichet, in an interview with Financial Times Deutschland published on Monday, said other eurozone governments would have to come up with ways to keep Greek banks in business if they continued pushing for a bail-out plan that would lead to bond defaults.
“If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral,” he told the newspaper in an interview to be published in its Monday edition.
“The governments would then have to step in themselves to put things right … the governments would have to take care the euro system is presented with collateral that it could accept.”
Mr Trichet’s statement, just days ahead of an emergency summit on the eurozone financial crisis in Brussels on Thursday, puts him in direct conflict with Angela Merkel, German chancellor, who has insisted bondholders bear some of the burden of a new €115bn Greek bail-out.
Rating agencies have said all of the plans under consideration would lead at least to a selective default.
Ms Merkel has warned that she will only attend an emergency summit on theeurozone financial crisis in Brussels on Thursday if there is going to be an agreement on a new rescue plan for Greece.
She insisted on Sunday that she wished to avoid any Greek debt rescheduling, but underlined that the key to a deal would be substantial voluntary involvement of private creditors in easing the Greek debt burden.
“The more voluntary contribution the private creditors make, the less likely will it be that further steps are needed,” she said in an interview with German state television.
In Brussels, senior European officials are engaged in two urgent parallel negotiations – one with private holders of Greek debt and one among themselves – in an attempt to finalise a new bail-out for Athens in time for the summit.
Ms Merkel said that she regarded an agreement on the Greek rescue as “urgently necessary”, and that she had cleared her diary to attend, but she added: “I will only go if there is a result.”
According to people involved, the talks among European Union member states, involving both the European Commission and the European Central Bank, are focused on pricing out options to get bondholders to shoulder a portion of the €115bn rescue.
At the insistence of Ms Merkel, officials have agreed in principle to push private bondholders to bear some of the cost, but they remain concerned about contagion effects from the deal.
Technical experts are now trying to gauge the impact, particularly on European banks, and determine the net effect of involving the bondholders.
Although a plan to involve bondholders would lighten the load on European taxpayers, it could destabilise Greek and other European banks, forcing national governments to spend additional funds in new recapitalisation efforts – neutralising the plan’s intended benefits to taxpayers.
One senior European official said that work on calculating the detailed cost of each option is to be completed in the next 24 to 48 hours so that a firm decision on the package can be completed in a conference call between Brussels and eurozone capitals, expected on Wednesday.
“There needs to be an agreement,” he said, stressing that the bondholder plan and a separate programme to use the eurozone’s €440bn bail-out fund to repurchase Greek debt should both be completed in days. “There needs to be a very clear political agreement on all the elements.”
Ms Merkel said the new deal should ensure that Greece was capable of servicing its debts. That meant drastic austerity measures by Athens to curb spending, additional public loans from eurozone partners, and a substantial contribution from private creditors.
She said that the euro as a common currency was “of absolute importance for Germany. The euro is part of the European identity.”
In order to ensure its stability, and promote greater competitiveness for the weaker eurozone members, closer co-operation among the eurozone partners was necessary, she added. “We must be more integrated.”
The second set of eurozone talks – between EU negotiators and a consortium of banks that hold Greek debt and would be involved in both programmes – also continued in Rome over the weekend, but have failed so far to come to an agreement.
The talks centre on two strategies: a debt swap, where holders of Greek bonds would exchange them for new, longer-maturing bonds, and the bond buyback plan, where the eurozone bail-out fund would be used to finance a repurchase of discounted Greek debt on the open market.
HSBC Global Research
>
> The head of the European Central Bank placed a major obstacle on the path to a new agreement on a Greek financial bail-out, saying the bank could not accept defaulted bonds as collateral, potentially cutting off fundng from the Greek banking system.
>
> Jean-Claude Trichet, in an interview with Financial Times Deutschland published on Monday, said other eurozone governments would have to come up with ways to keep Greek banks in business if they continued pushing for a bail-out plan that would lead to bond defaults.
>
> “If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral,” he told the newspaper in an interview to be published in its Monday edition.
>
> “The governments would then have to step in themselves to put things right … the governments would have to take care the euro system is presented with collateral that it could accept.”
>
> Mr Trichet’s statement, just days ahead of an emergency summit on the eurozone financial crisis in Brussels on Thursday, puts him in direct conflict with Angela Merkel, German chancellor, who has insisted bondholders bear some of the burden of a new €115bn Greek bail-out.
>
> Rating agencies have said all of the plans under consideration would lead at least to a selective default.
>
> Ms Merkel has warned that she will only attend an emergency summit on theeurozone financial crisis in Brussels on Thursday if there is going to be an agreement on a new rescue plan for Greece.
>
> She insisted on Sunday that she wished to avoid any Greek debt rescheduling, but underlined that the key to a deal would be substantial voluntary involvement of private creditors in easing the Greek debt burden.
>
> “The more voluntary contribution the private creditors make, the less likely will it be that further steps are needed,” she said in an interview with German state television.
>
> In Brussels, senior European officials are engaged in two urgent parallel negotiations – one with private holders of Greek debt and one among themselves – in an attempt to finalise a new bail-out for Athens in time for the summit.
>
> Ms Merkel said that she regarded an agreement on the Greek rescue as “urgently necessary”, and that she had cleared her diary to attend, but she added: “I will only go if there is a result.”
>
> According to people involved, the talks among European Union member states, involving both the European Commission and the European Central Bank, are focused on pricing out options to get bondholders to shoulder a portion of the €115bn rescue.
>
> At the insistence of Ms Merkel, officials have agreed in principle to push private bondholders to bear some of the cost, but they remain concerned about contagion effects from the deal.
>
> Technical experts are now trying to gauge the impact, particularly on European banks, and determine the net effect of involving the bondholders.
>
> Although a plan to involve bondholders would lighten the load on European taxpayers, it could destabilise Greek and other European banks, forcing national governments to spend additional funds in new recapitalisation efforts – neutralising the plan’s intended benefits to taxpayers.
>
> One senior European official said that work on calculating the detailed cost of each option is to be completed in the next 24 to 48 hours so that a firm decision on the package can be completed in a conference call between Brussels and eurozone capitals, expected on Wednesday.
>
> “There needs to be an agreement,” he said, stressing that the bondholder plan and a separate programme to use the eurozone’s €440bn bail-out fund to repurchase Greek debt should both be completed in days. “There needs to be a very clear political agreement on all the elements.”
>
> Ms Merkel said the new deal should ensure that Greece was capable of servicing its debts. That meant drastic austerity measures by Athens to curb spending, additional public loans from eurozone partners, and a substantial contribution from private creditors.
>
> She said that the euro as a common currency was “of absolute importance for Germany. The euro is part of the European identity.”
>
> In order to ensure its stability, and promote greater competitiveness for the weaker eurozone members, closer co-operation among the eurozone partners was necessary, she added. “We must be more integrated.”
>
> The second set of eurozone talks – between EU negotiators and a consortium of banks that hold Greek debt and would be involved in both programmes – also continued in Rome over the weekend, but have failed so far to come to an agreement.
>
> The talks centre on two strategies: a debt swap, where holders of Greek bonds would exchange them for new, longer-maturing bonds, and the bond buyback plan, where the eurozone bail-out fund would be used to finance a repurchase of discounted Greek debt on the open market.