EUROPEAN CENTRAL Bank president Jean-Claude Trichet has said the euro zone will “have to wait and see” if ratings agencies view a second Greece aid package agreed last night as a selective default.
A tense, tired-looking Mr Trichet insisted last night’s deal contained only voluntary involvement of private sector investors, as his institution had demanded. “It’s clear to see that Greece is in an exceptional situation needing exceptional, individual solutions.”
The ECB head said he was happy with a commitment by euro zone members to, if necessary, provide his bank with credit to the order of €35 billion.
This would be necessary in the case of a “selective default”, which would render ineligible Greek bonds currently held by the ECB.
“I don’t want to prejudge but in any case the decision was taken to enhance collateral to permit eligibility of our own finance operation.”
Mr Trichet welcomed an additional commitment to recapitalise Greek banks if needed by up to €20 billion.
After nine hours of talks, Chancellor Angela Merkel described the deal as “an important step to greater competitiveness and great debt sustainability”.
“We’ve done two things: on the one hand agreed the basis for a new programme for Greece with, for the first time, the voluntary participation of private sectors,” she said. “On the other hand, to keep the euro stable we need additional instruments so there is no contagion effect.”
Dr Merkel said she was satisfied that new tools for the European Financial Stability Facility (EFSF) – and later for the permanent European Stability Mechanism (ESM) fund from 2013 – would provide effective protection against contagion with enough conditions and controls.
She confirmed that future cuts in Greek interest rates would apply to Ireland and Portugal.
“It’s correct to say that the finance costs will reflect near to the financing costs for the EFSF, approximately 3.5 per cent, though that can vary over time.”
The German leader dismissed suggestions yesterday’s proposals impaired the independence of the European Central Bank, saying the deal was “an expression that the ECB is as independent as us”.
German officials said an initial buyback of Greek bonds costing €12 billion would reduce debt by €12.6 billion.
IMF chief Christine Lagarde described as “game-changing” yesterday’s commitment by euro zone states to support countries under programmes until they have regained market access.
She said she was confident markets would appreciate the new flexibility of the EFSF and the ESM. “I believe this constructive and comprehensive package reduces the level of uncertainty and that we go away with a much more solid view of confidence euro zone members have in their own destiny. There was definitely a collective determination driven by a desire to keep things together and to make sure they have tools to resist.”
