Debt rollover idea gaining support
ECB officials admit that plan may include investors buying new bonds and replacing old ones
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.