Noyer Says Any Greek Default Would Mean Financing Whole Economy
European Central Bank Governing Council member Christian Noyer said any attempt by euro-area governments to adjust Greek debt that resulted in a default would mean financing the nation’s entire economy.
“Our position is extremely simple: if there is a solution that avoids a risk of default, it seems suitable,” Noyer told journalists in Paris today. “If you can’t find it, it’s better to avoid touching the debt. If despite everything you try to reduce the debt and you provoke a risk of default, you’ll have to finance the entire Greek economy.”
The comments are the latest outlining the ECB’s opposition to any effort to restructure Greek debt or extend the maturities of its bonds that isn’t entirely voluntary. ECB President Jean- Claude Trichet said yesterday that governments should “avoid whatever would trigger a credit event.” Germany, Europe’s largest economy, has said creditors should pay some of the cost of supporting Greece.
European finance chiefs gather later today in Brussels to hammer out a Greek rescue to prevent the euro area’s first sovereign default after the country was slapped with the world’s lowest credit rating by Standard & Poor’s.
Yields on 10-year Greek bonds climbed to a euro-era record of 17.12 percent today. Finance ministers are seeking to narrow differences on how investors share the cost of easing Greece’s debt burden and to wrap up a new financing plan at a leaders’ summit on June 23-24, a year after Greece received a first bailout.
Collateral
Noyer today repeated Trichet’s threat that the ECB would stop accepting Greek government bonds as collateral in its refinancing operations to banks if the country defaults.
“We’ve gone as far as possible in our interpretation of the quality of debt,” he said. “If we have debt in default, it will be impossible to consider that we have quality debt. Therefore it will become impossible to accept this debt as collateral.”
To believe that restructuring or rescheduling can lead to a relaxation of budget plans is a “dangerous illusion,” he said. “Such operations do not in themselves provide any new financing. They always lead, at least initially, to a further drop in confidence and lower capital inflows, which increases the adjustment effort needed.”
Noyer also rejected suggestions that the ECB’s stance was related to concerns about the ability of European banks to absorb losses on Greek debt, or even about the ECB taking losses on its own Greek holdings.
The position “has nothing to do with the situation of French or German or European banks, and nothing to do with the fact that the euro system holds Greek debt,” he said. “That’s rubbish. Our one and only concern is the financing of the Greek economy.”
“We must absolutely avoid anything that could result in a default,” Noyer said. “It would be an extraordinarily serious risk for the financing of the Greek economy and would be one for a certain number of euro-zone regions after that.”
To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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