Angel Gurria, secretary general of the Organization for Economic Cooperation and Development, said the European Central Bank should accept losses on its portfolio of Greek bonds to help the euro-area nation.
“I think it’s a good idea,” Gurria said in an interview with Bloomberg Television’s Caroline Connan today in Davos, Switzerland. “We always proposed this should be done and it will also help create an atmosphere of equal treatment. The ECB bought these bonds at a discount and I think at least this discount could be accrued in favor of Greece.”
The ECB is opposed to joining private-sector investors in accepting losses on Greek debt on concern this would damage confidence in the institution, two people familiar with the Governing Council’s stance said. Institute of International Finance Managing Director Charles Dallara, who’s negotiating on behalf of bondholders on a Greek debt deal, said yesterday that all parties should contribute to cutting Greece’s debt.
Dallara will return to Athens tomorrow to resume talks with the Greek government on the bond swap. Gurria said the parties “need to close the deal.”
“Every day that passes, the possibility of contagion increases,” Gurria said. “We’ve seen the consequences of contagion in financial markets.”
European officials and Greece’s private bondholders agreed in October to implement a 50 percent cut in the face value of more than 200 billion euros ($259 billion) of debt by voluntarily exchanging outstanding bonds for new securities. The accord is tied to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.
“The question is not whether the payment will be made or not, but whether it’s paid at 50 percent or not be made at all,” Gurria said. “That would be disruptive if there is no deal, no arrangement. There is time. Let’s use the next few days.”
Germany signaled earlier this week that it might back an increase in the region’s overall rescue capacity to 750 billion euros from July when the temporary fund, the European Financial Stability Facility, runs in parallel with the permanent fund.
Gurria today said that Europe should boost the rescue capacity to 1 trillion euros.
“After Greece, we still have to deal with the question of the firewall, and the firewall has to be big enough in order to be credible,” Gurria said. “It’s like a vaccine, it’s against the contagion, and if it’s big enough, maybe you don’t even have to use it.”