Debt rollover idea gain­ing sup­port

ECB of­fi­cials ad­mit that plan may in­clude in­vestors buy­ing new bonds and re­plac­ing old ones

Kathimerini English - - Business & Finance -

Euro­pean Cen­tral Bank Gov­ern­ing Coun­cil mem­ber Nout Wellink said a debt rollover may form part of a new aid pack­age for Greece as the Frank­furt-based lender re­mained firmly against any re­struc­tur­ing of the coun­try’s mas­sive debt load.

“I don’t rule out that a part of the ad­di­tional re­fi­nanc­ing can come from that source,” Wellink said in Am­s­ter­dam yes­ter­day.

Re­spond­ing to a pan­elist’s com­ment on en­cour­ag­ing in­vestors to buy new bonds to re­place matur- ing ones, he said that “there are op­tions that can work, we have seen that with the Vi­enna ini­tia­tive some years ago.”

Pol­i­cy­mak­ers are mulling the idea of bond rollovers as a pil­lar of any new aid pack­age.

The step would be fa­vored by the ECB, two of­fi­cials fa­mil­iar with the sit­u­a­tion told Bloomberg, as it would re­duce the risk of any agree­ment be­ing clas­si­fied as a de­fault.

In­vestors may be given pre­ferred sta­tus, higher coupon pay­ments or col­lat­eral, ac­cord­ing to two other Euro­pean Union of­fi­cials fa­mil­iar with the sit­u­a­tion.

EU lead­ers are due to meet in Brus­sels on June 23-24 to ap­prove a plan.

Wellink also reaf­firmed his op­po­si­tion to a Greek debt re­struc­tur­ing, say­ing it could lead to “con­ta­gion with re­gard to Ire­land and Por­tu­gal.”

His com­ments come as ECB Ex­ec­u­tive Board mem­ber Lorenzo Bini Smaghi de­scribed a sov­er­eign debt re­struc­tur­ing as be­ing an op­tion of “last re­sort” as it may have “se­vere im­pli­ca­tions” on the coun­try and in­vestors.

“More of­ten than not, re­struc­tur­ings have been disor­derly, harm­ful and fraught with dif­fi­cul­ties,” Bini Smaghi said in Ber­lin yes­ter­day.

“Im­pos­ing hair­cuts on pri­vate in­vestors can se­ri­ously dis­rupt the fi­nan­cial and real econ­omy of both the debtor and cred­i­tor coun­tries” and “this is why such re­struc­tur­ing should only be the last re­sort.”

ECB Vice Pres­i­dent Vi­tor Con­stan­cio said yes­ter­day in Fiesole, Italy, that “we have to be very care­ful in an­a­lyz­ing” the var­i­ous op­tions for Greece. There are “sev­eral pos­si­bil­i­ties” and “some of them we may refuse,” he said.

The ECB faces losses of up to 66 bil­lion eu­ros on the gov­ern­ment bonds it has pur­chased and the col­lat­eral it is hold­ing from Greek banks if the coun­try re­struc­tured half of its debt, ac­cord­ing to re­search group Open Europe. The ECB has an ex­po­sure of about 190 bil­lion eu­ros to Greek as­sets, it added.

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