ECB warns of cri­sis hit­ting re­gion

ECB’s Con­stan­cio re­it­er­ates sup­port for vol­un­tary debt rollover; Schaeu­ble ex­pects de­ci­sion Mon­day

Kathimerini English - - Business & Finance -

The Euro­peanCen­tral Bank said the threat of the Greek debt cri­sis spilling over into the bank­ing sec­tor is the big­gest risk to the re­gion’s fi­nan­cial sta­bil­ity.

“Greece could have a con­ta­gion ef­fect,” ECB Vice Pres­i­dent Vi­tor Con­stan­cio said in Frank­furt yes­ter­day.

“That’s the rea­son why we are against any sort of de­fault with hair­cuts and any form of pri­vate sec­tor event that could lead to a credit event or a rat­ing event.”

The euro area’s sov­er­eign-debt woes have wors­ened as in­vestors in- creased bets that Greece will not be able to pay its debts, spark­ing the re­gion’s first sov­er­eign de­fault.

Greek gov­ern­ment bonds led de­clines by se­cu­ri­ties from Europe’s most in­debted coun­tries yes­ter­day.

Greek 10-year bond yields in­creased 41 ba­sis points to 17.79 per­cent. The yield dif­fer­ence, or spread, ver­sus bench­mark Ger­man bunds widened to a euro-era record 1,494 ba­sis points, or 14.94 per­cent­age points.

“The euro area faces a very chal­leng­ing sit­u­a­tion that comes mostly from the in­ter­con­nec­tion of the sov­er­eign debt cri­sis and the sit­u­a­tion of the bank­ing sec­tor,’’ the ECB said in the re­view. “In light of the po­ten­tially very dan­ger­ous im­pli­ca­tions of sov­er­eign debt re­struc­tur­ing for the debtor coun­try, in­clud­ing its bank­ing sys­tem, a de­ter­mined and un­wa­ver­ing fo­cus on im­prov­ing fun­da­men­tals” is re­quired.

The ECB and the Ger­man gov­ern­ment have clashed over how much in­vestors should con­trib­ute to al­le­vi­at­ing Greece’s debt load, which reached 143 per­cent of gross do­mes­tic prod­uct in 2010.

While the Ger­man gov­ern­ment has ar­gued for an ex­ten­sion of the ma­tu­ri­ties of Greek bonds, the ECB has said it’s against any­thing that could be in­ter­preted as a de­fault.

Con­stan­cio re­it­er­ated that the ECB is in fa­vor of a plan for bond­hold­ers to agree to roll over their debt vol­un­tar­ily. The ap­proach is mod­eled on the Vi­enna ini­tia­tive, where banks agreed to roll over loans to units in East­ern Europe at the height of the fi­nan­cial cri­sis in 2009. “We are not against all forms of pri­vate sec­tor in­volve­ment,” he said. “Some sort of Vi­enna-style ini­tia­tive could be con­ceived. It’s not for us to pro­vide so­lu­tions.”

Eu­ro­zone fi­nance min­is­ters plan to reach a de­ci­sion on how pri­vate hold­ers of Greek debt should share the costs of a new bailout for Athens on Mon­day, Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble said yes­ter­day.

“We have said the de­ci­sion is due in the euro group on the 20th and un­til then you will have to be pa­tient,” Schaeu­ble told re­porters.

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