TOKYO (MNI) – The European Union needs to bolster the European
Financial Stability Mechanism in order to deal with the sovereign debt
crisis in the region, the Nikkei reported on Monday, citing a senior
European Central Bank official.

“We need strong firewalls in Europe,” the business daily quoted
Benoit Coeure, an executive board member of the European Central Bank as
saying in a recent interview in Berlin.

Coeure also said that the contingency risk in the financial markets
stemming from the debt crisis in Europe has lessened, but added that the
situation remains “fragile.”

“We note that the PSI has been a success,” he also said, adding
that “we now have very much hope that the second Greek adjustment
program will be implemented and that Greece can come back to
sustainability.”

On Friday, Eurozone finance ministers cleared the E30 billion
“sweetener” for the Greek debt swap with private investors and E5.5
billion of aid to cover interest rate payments, while the participation
of private sector creditors in Greece’s debt exchange offer hit 95.7%,
covering E197 billion out of a total of nearly E206 billion worth of
privately held Greek bonds.

International Monetary Fund Managing Director Christine Lagarde
said on the same day she will recommend $36.7 billion in aid for the
debt-laden EMU member.

“Today I have consulted with the IMF’s Executive Board and on that
basis, as discussed with the Greek government, I intend to recommend a
E28 billion (about US$36.7 billion) arrangement under the Fund’s
Extended Fund Facility (EFF) to support Greece’s ambitious economic
program over the next four years,” she said in a statement.

Moody’s Investors Service also issued a statement on Friday, saying
it considers Greece (C rating with no outlook) to have defaulted per its
default definitions further to the conclusion of an exchange of E177
billion of debt that is governed by Greek law for bonds issued by the
Greek government, GDP-linked securities, European Financial Stability
Facility.

“Foreign-law bonds are eligible for the same offer, and Moody’s
expects a similar debt exchange to proceed with these bondholders, as
well as the holders of state-owned enterprise debt that has been
guaranteed by the state, in the coming weeks,” Moody’s said.

Meantime, Coeure defended the euro, saying that “we never
experienced a crisis of confidence in the euro as a currency.”

But the ECB official did not say whether he wants to see a weaker
or stronger euro, saying simply that “I’m fond of a stable euro.”

tokyo@marketnews.com
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