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15th Aug 2022

ECB: Non-voluntary Greek restructuring would be 'enormous mistake'

The European Central Bank chief on Thursday warned against any non-voluntary restructuring of Greek debt, rebuffing the German position in favour of such a move.

"We would say it's an enormous mistake to embark on decisions that would trigger a credit event," Jean-Claude Trichet told reporters in Frankfurt.

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  • The ECB opposes any non-voluntary restructuring (Photo: John D. Carnessiotis, Athens, Greece)

He said that the bank would oppose "concepts which would not be purely voluntary," wording that suggests the ECB could accept a rollover of debts agreed between the Greek state and its creditors, but not the significant losses that would be involved in what Berlin appears to be backing.

German finance minister Wolfgang Schaeuble backed a seven-year pause in the collection of debts, according to a letter leaked to the press on Tuesday.

"We are standing before the real risk of the first full-blown bankruptcy inside the eurozone," Schaeuble said in a letter addressed to European Central Bank president Jean-Claude Trichet and leaked to the German press.

He called for additional aid to be made available to Greece, adding that private banks should participate in the cost of the Greek rescue, describing as necessary "a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years."

Frankfurt is the holder of billions in Greek bonds while Germany is in something of a safer position.

Trichet also said that the ECB would continue to apply collateral rules in such an event, which could cut Greek banks off from needed liquidity.

Analysts however took the bank's mood as something of a retreat from its earlier more robust position against any restructuring.

"ECB president Trichet repeated the ECB's opposition against debt restructuring but in fact back-paddled a bit," said ING bank senior economist Carsten Brzeski in response to Trichet's statements.

"According to Trichet, the ECB is not in favour of debt restructuring or concepts which are not voluntary and could trigger a credit event or selective default. It looks as if the ECB's resistance to voluntary concepts is crumbling. "

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