–But ECB Continues To Reject Any Form Of Restructuring

AACHEN, Germany (MNI) – The European Central Bank does not exclude
some form of private sector involvement in a new financial aid package
for Greece, but it continues to reject any form of restructuring, ECB
Vice President Vitor Contancio said Thursday.

“Some forms of private sector involvement that are voluntary we
admitted as a possibility,” Constancio told reporters at an event here.
But a key condition is “avoiding a legal credit event,” he said.

The ECB opposes any kind of restructuring or default, he said. “A
default would be bad for Greece, bad for the Eurozone and bad for global
financial markets.”

EU officials appear to be moving closer to an agreement that could
provide Greece with more than E60 billion in new funding to meet
otherwise uncovered financing needs expected to arise in 2012 and 2013.
One key sticking point has been — and remains — how to accommodate a
demand by Germany and some other countries that private sector creditors
bear some of the burden in the new package.

The ECB has vehemently opposed any haircut or maturity extension on
Greek debt, saying that they would ultimately amount to the same thing
— a default or partial default.

But senior ECB officials in recent days have said they may be open
to the idea of a voluntary rollover of Greek bonds by banks and other
creditors holding them. The idea would be for the creditors to agree in
advance to take new Greek bonds, presumably at affordable rates, when
the ones they are holding expire.

A similar approach, known as the “Vienna Initiative” was applied to
Eastern European debt during the height of the financial crisis in 2008
and 2009.

However, it is unclear how private financial institutions will be
induced to make such commitments given how high Greek yields are now and
the market perception that a large haircut on Greek bonds — as much as
50% — is only a matter of time. It’s also not certain that such a
pre-commitment by banks would actually be enforceable when the time came
to accept the new bonds, particularly if financial conditions in the
interim had made their earlier promises seem financially unsound.

Constancio also supported a call by ECB President Jean-Claude
Trichet for a common Eurozone Finance Ministry. Moves towards a
“quasi-fiscal union” would be “clearly very helpful,” he said.

Constancio and other members of the ECB Executive Board attended a
ceremony here in which Trichet received the prestigious International
Charlemagne Prize, awarded by the city of Aachen. In his acceptance
speech, Trichet said he could envision the eventual creation of a common
finance ministry for the euro area.

–Frankfurt Newsroom, +49-69-720-142; jtreek@marketnews.com

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