‘Greece will need more time’
Schauble says insolvency impact may be worse than Lehman Brothers collapse; bonds rise for third day
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.