ECB in high-stakes ma­neu­vers

Trichet rules out any form of Greek debt re­struc­tur­ing; Moody’s says rollover may not be vol­un­tary

Kathimerini English - - BUSINESS & FINANCE -

Athens must avoid any form of re­struc­tur­ing in tack­ling its debt cri­sis, Euro­pean Cen­tral Bank Pres­i­dent Jean-Claude Trichet said yes­ter­day as Moody’s ques­tioned how a pos­si­ble rollover of Greek debt would work on a vol­un­tary ba­sis.

“We are not in fa­vor of re­struc­tur­ing... and so forth. We ex­clude all con­cepts which would not be purely... with­out any el­e­ments of com­pul­sion,” Trichet told a news con­fer­ence in Frank­furt. “We call for avoid­ing any credit event and se­lec­tive de­fault, say. And, of course, de­fault.”

Trichet was ques­tioned re­peat­edly on the Greek cri­sis dur­ing a news con­fer­ence to dis­cuss the ECB’s de­ci­sion yes­ter­day to keep in­ter­est rates at 1.25 per­cent.

He also sig­naled the ECB stood ready to raise rates again next month, de­spite the cri­sis en­gulf­ing the eu­ro­zone’s weaker economies.

The ECB is caught up in high­stakes ma­neu­ver­ing be­tween fi­nan­cial mar­kets, eu­ro­zone gov­ern­ments and the In­ter­na­tional Mon­e­tary Fund over who is go­ing to pay to avoid Greece be­com­ing the euro area’s first state in­sol­vency.

Greek gov­ern­ment bond yields rose sharply yes­ter­day af­ter Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble called on Wed­nes­day for a “sub­stan­tial con­tri­bu­tion” to sup­port Greece from pri­vate hold­ers of its debt and sug­gested ex­tend­ing the ma­tu­ri­ties of out­stand­ing Greek debt by seven years. The 10-year Greek yield climbed 61.8 ba­sis points to 16.72 per­cent yes­ter­day.

Trichet’s com­ments ap­pear to un­der­line his op­po­si­tion to such pres­sure. “I am not em­bark­ing on a dia- logue with a par­tic­u­lar min­is­ter here,” Trichet said, later reit­er­at­ing, “No credit event, no se­lec­tive de­fault.”

One idea mooted by EU of­fi­cials is to get banks to agree vol­un­tar­ily to buy new Greek debt when the bonds they cur­rently hold ma­ture.

Asked if the ECB would roll over its own Greek bond­hold­ings, Trichet replied, “It’s cer­tainly not our in­ten­tion.”

Com­ment­ing on a vol­un­tary in­vestor par­tic­i­pa­tion in a Greek debt re­struc­tur­ing, Moody’s said yes­ter­day that it’s “hard to imag­ine some­thing that’s truly vol­un­tary in the cur­rent cli­mate.”

Bart Ooster­veld, man­ag­ing di­rec­tor in charge of sov­er­eign risk at Moody’s, told re­porters in Frank­furt that “the de­fault risks for pe­riph­eral Euro­pean coun­tries con­tinue to in­crease.”

Greece’s lo­cal and for­eign cur­rency bond rat­ings were cut to Caa1 from B1 on June 1 by Moody’s, which cited a grow­ing risk that the coun­try will de­fault on its debt. The out­look on Greek debt is neg­a­tive, mean­ing the rat­ing could be re­duced fur­ther, Moody’s said. The rat­ing is seven steps be­low in­vest­ment grade.

Ooster­veld said small de­faults tend to be fol­lowed by fur­ther de­faults by the same is­suer. There have been about 20 sov­er­eign de­faults since 1998, lim­ited to emerg­ing mar­kets, with an av­er­age loss, or hair­cut, of about 50 per­cent, he said.

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