22nd Oct 2020

European Central Bank chief does not exclude Greek default

  • 'We often give advice that is not followed,' said Trichet (Photo: Council of European Union)

European Central Bank chief Jean Claude Trichet on Thursday (21 July) said that he could not prejudge if ratings agencies would declare a 'selective' default of Greek bonds, but noted that eurozone leaders have prepared for that event with €55bnn for bank recapitalisations and improving the creditworthiness of Greek government debt.

Admitting that eurozone leaders had disregarded his advice on avoiding a selective default for Greece or any other 'credit event', Trichet however stressed that the leaders prepared themselves with the exact tools he recommended.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

He also insisted that the red line the ECB had set for private sector involvement in the second Greek bailout - that it be "voluntary, not compulsory" - had been respected by eurozone leaders.

It would be the first time in the history of the eurozone that one member country defaults, prompting government assistance and forcing the ECB to buy up bonds with no market value, but 'secured' by the EU bailout fund. Despite the leaders' reassurances that it is a one-off, this would create a precedent and may further spook markets when it comes to other euro-countries' debt and economic troubles.

At the closing press conference, the outgoing central banker put a brave face on the situation with his institution having been repeatedly adopted measures it had previously rejected or warned against.

"We've said from the very beginning: It is you [leaders] who are responsible. But they've also ignored our advice when they didn't respect the Stability and Growth Pact or when we had called for stronger economic co-ordination and measures to boost competitiveness," he said.

On the eve of the special eurozone summit, Trichet went to Berlin where German chancellor Angela Merkel had already been debating for hours with French President Nicolas Sarkozy on having banks involved in a second bailout for Greece.

The meeting lasted for another three hours, but in the end, Trichet accepted that private banks will be involved and that the ECB may have to buy up Greek bonds declared as "defaulted" by ratings agencies, as long as they are backed up by stronger and "sound" collateral from the EU's bailout fund, the EFSF.

And in case of a 'selective' Greek default, eurozone leaders have foreseen two measures recommended by the ECB, sid Trichet referring to €20bln to be pumped into ailing banks and €35bn for improving the creditworthiness of Greek government debt.

He said that eurozone leaders stressed clearly that the private sector involvement was a one-off due to "exceptional" conditions in Greece, and that this was "as much as we could get" so as to calm markets' concerns regarding similar measures for other bailed out countries, such as Portugal and Ireland.

The decision to give the EFSF more flexibility in order to prevent contagion and help out countries before they even have to ask for a bailout was also "strongly promoted" by the ECB, as well as the growth-boosting measures for Greece and technical assistance from the EU and the IMF.

"But in the end the main issue is implementation and hard work done by Greece," Trichet said, once more stressing the need to for the Mediterranean country to sell its state-owned companies and assets, a programme Athens estimates to be worth €50bn.

"Privatisation is key and it is a big card in its hands, there isn't any other country with such big assets," the Frenchman said.

Implementation as desired by the ECB still has a rocky way ahead, as the country's trade unions are carrying out one protest after another against the austerity measures and deregulation efforts of the Greek government.

For the fourth day in a row, Greek taxi drivers on Thursday blocked ports and airports on the islands of Crete and Corfu - both Meccas for tourists from all over Europe.

The cab drivers are fighting a licensing overhaul which would make it easier for newcomers to compete on the market, a measure which is part of the reform package agreed in the EU-IMF bailout conditions.

Tourism makes up 16 percent of Greece's GDP and the government had counted on a 10 percent increase in revenues from this sector this year.


Violating promises and law, von der Leyen tests patience

Under EU Commission president Ursula von der Leyen, transparency was supposed to be a "guiding principle". Instead, the European Commission is asking Kafkaesque questions in response to an access to documents request, and failing to meet its legal deadline.

Future of Europe: EU Council urged to propose a chair

Since the German presidency promised the Conference on the Future of Europe would start under their leadership, the European Commission and MEPs hope the event will be launched soon. But there is one issue: who will chair the conference?

Nine-in-ten EU regions face revenue plunge, report finds

The decrease of revenues in 2020 of subnational authorities in France, Germany and Italy alone is estimated to be €30bn for the three countries, a new report by the European Committee of the Regions says.

EU Parliament sticks to demands in budget tussle

The parliament wants €38.5bn extra for key programmes, which is less than their previous request of around €100bn. Negotiations continue on Thursday, but the budget and recovery could still get stuck on the rule-of-law issue.

Rightwing MEPs bend to Saudi will after Khashoggi death

Saudi dissident and journalist Jamal Khashoggi was killed two years ago on 2 October. Since then, mainly centre-right, conservative and far-right MEPs have voted down any moves to restrict, limit or ban the sales of weapons to the Saudi regime.

MEPs deliver blow to EU body embroiled in harassment case

MEPs have refused to sign off the accounts of the European Economic and Social Committee, in yet another blow to the reputation of the EU's smallest institution. The massive vote against was linked to ongoing psychological harassment cases.

News in Brief

  1. Commission to press Croatia on migrant 'abuse' at border
  2. Belarus opposition awarded 2020 Sakharov Prize
  3. Belgium's foreign minister in intensive care for Covid-19
  4. MEPs restrict CAP funding for bullfighting
  5. Coronavirus: Liège is 'the Lombardy of the second wave'
  6. UK to keep out EU nationals with criminal past
  7. Report: EU to restrict travel from Canada, Tunisia, Georgia
  8. Pope Francis supports same-sex civil unions

Rightwing MEPs bend to Saudi will after Khashoggi death

Saudi dissident and journalist Jamal Khashoggi was killed two years ago on 2 October. Since then, mainly centre-right, conservative and far-right MEPs have voted down any moves to restrict, limit or ban the sales of weapons to the Saudi regime.

EU parliament vows not to cave in to budget pressure

The parliament's majorty dismisses the German EU presidency's proposal on the rule of law conditionality, which has emerged as the main political obstacle to agree on the next long-term EU budget.

Stakeholders' Highlights

  1. UNESDAMaking healthier diets the easy choice
  2. Nordic Council of MinistersUN Secretary General to meet with Nordic Council on COVID-19
  3. UNESDAWell-designed Deposit Return Schemes can help reach Single-Use Plastics Directive targets
  4. Nordic Council of MinistersNordic Council meets Belarusian opposition leader Svetlana Tichanovskaja
  5. Nordic Council of MinistersNordic Region to invest DKK 250 million in green digitalised business sector
  6. UNESDAReducing packaging waste – a huge opportunity for circularity

Latest News

  1. Nato and EU silent on Turkey, despite Armenia's appeal
  2. EU tells UK to decide on Brexit as deal 'within reach'
  3. EU farming deal attacked by Green groups
  4. France vows tough retaliation for teacher's murder
  5. All eyes on EU court for decision on religious slaughter
  6. 'Big majority' of citizens want EU funds linked to rule of law
  7. EU declares war on Malta and Cyprus passport sales
  8. EU Commission's Libya stance undercut by internal report

Join EUobserver

Support quality EU news

Join us