BERLIN (MNI) – ECB Governing Council member Jens Weidmann on
Thursday said that the Greek bailout deal agreed by the Eurogroup on
Monday has avoided a haircut on Greek bonds held by the public sector.

Yet, the the public sector is taking on additional risks under the
deal, Weidmann cautioned.

“With the decisions from Monday night the debt haircut has been
avoided for the moment,” Weidmann remarked in a draft for a speech to be
delivered at a conference of the economic council of Chancellor Angela
Merkel’s center-right Christian Democratic Union here.

Greece’s debt burden is to be alleviated instead by a bundle of
other measures, Weidmann remarked. “In the end, with these measures the
public borrowers are still forgoing parts of their claims or are even
taking on additional risks,” said Weidmann, who is president of the
German Bundesbank.

In order to undertake the planned buy-back of its own bonds on
secondary markets, Greece needs money and, thus, further loans from its
public borrowers, the central banker remarked.

The Bundesbank president also poured water on the wine regarding
the Eurogroup’s plan to pass on the profits from the ECB’s previous SMP
bond buying program to Greece.

He stressed that it is up to the independent Bundesbank to decide
how much of the German share of the profits it will pass on to the
German government so that it can then transfer the money to Greece.
Weidmann reminded that the Bundesbank will likely hold back part of the
profits as risk provisions.

Finance Minister Wolfgang Schaeuble said earlier this week that if
the Bundesbank would not pass on the full German share of the SMP
profits to the government, the rest of the money would have to come from
the federal budget. In any case, Germany will pass on the full SMP
profit to Greece, Schaeuble vowed.

Weidmann urged that Greece now has to meet all of its reform
commitments. “Otherwise, the new measures would have no impact,” he
cautioned. Greece still has a long way to go, he remarked.

The Governing Council member said the concessions made to Greece
must not become a role model for the handling of other crisis states,
warning that this could transform the EMU into a transfer union.

In other remarks, Weidmann reaffirmed his rejection of mutualizing
legacy bank assets in a European banking union. This would be “extremely
problematic,” because it would undermine the no-bailout clause in the EU
treaties, he argued.

“Legacy assets in bank’s balance sheets must be covered by the
respective member states,” he insisted.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@mni-news.com

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