ECB in high-stakes maneuvers
Trichet rules out any form of Greek debt restructuring; Moody’s says rollover may not be voluntary
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.