‘Greece will need more time’

Schauble says in­sol­vency im­pact may be worse than Lehman Brothers col­lapse; bonds rise for third day

Kathimerini English - - Business & Finance -

Ger­man Fi­nance Min­is­ter Wolf­gang Schauble says that Greece should be given more time to sort out its pub­lic fi­nances and warned that a re­struc­tur­ing of its debt would be “cat­a­strophic.”

“At the mo­ment, it ap­pears as if Greece will need more time,” Schauble said in an in­ter­view with Ger­many’s Han­dels­blatt news­pa­per.

The Euro­pean Union is cur­rently dis­cussing the pos­si­bil­ity of ex­tend­ing the ma­tu­ri­ties on Greece’s loans.

Schauble re­jected the idea of banks be­ing forced to ac­cept write- downs on their hold­ings of Greek gov­ern­ment debt. “It’s re­ally not about do­ing the banks a fa­vor – we all have an over­rid­ing in­ter­est in a func­tion­ing fi­nan­cial sys­tem,” he said.

Schauble said the con­se­quences of a Greek debt re­struc­tur­ing for the bank­ing sys­tem could be even worse than the panic caused by the 2008 col­lapse of Lehman Brothers.

“It could lead to all debts com­ing due im­me­di­ately, with the cor­re­spond­ing con­se­quences for Greece’s sol­vency,” he said. “If Greece were in­sol­vent... the con­se­quences could be more cat­a­strophic than those af­ter the col­lapse of Lehman Brothers.”

The Ger­man fi­nance min­is­ter sug­gested the EU should be more cre­ative in help­ing to solve Greece’s prob­lems, be­yond of­fer­ing fi­nan­cial aid. “It is true that in the Euro­pean Union we have not yet ex­plored all the sce­nar­ios to help Greece.”

EU-backed in­vest­ments could help the Greek econ­omy re­cover, for in­stance by putting money into re­new­able en­ergy projects, he said.

Mean­while, Greek bonds rose yes- ter­day af­ter the head of the Euro­pean Union’s bailout fund, Klaus Regling, said the euro area has found the “right re­sponse” to its debt cri­sis.

The spread, or yield dif­fer­ence, be­tween Greek 10-year debt and Ger­man bunds nar­rowed for a third day.

Regling, chief ex­ec­u­tive of­fi­cer of the Euro­pean Fi­nan­cial Sta­bil­ity Fa­cil­ity, was quoted by the Fi­nan­cial Times as say­ing yes­ter­day that China may ac­count for a “strong pro­por­tion” of de­mand for Por­tuguese bailout bonds when the EFSF be­gins sell­ing them in June.

Gains in so-called pe­riph­eral eu­rona­tion debt are oc­cur­ring “prin­ci­pally on the back of the FT ar­ti­cle that China is look­ing at pur­chas­ing EFSF bonds,” Richard McGuire, a se­nior fixed-in­come strate­gist at Rabobank In­ter­na­tional in Lon­don, told Bloomberg. “We would still cau­tion against the feel-good fac­tor.”

Yields on 10-year Greek bonds fell 39 ba­sis points to 16.33 per­cent. The spread be­tween Greek 10-year debt and sim­i­lar-ma­tu­rity Ger­man bunds fell 34 ba­sis points to 1,334 ba­sis points, or 13.34 per­cent­age points.

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