–Adds Comments On Greece, the Euro, Rating Agencies, the EU’s Future

BRUSSELS (MNI) – Speculators positioning themselves to profit from
a possible Greek default are sure to lose money after the measures
agreed on last week by Eurozone leaders, European Central Bank President
Jean-Claude Trichet said in an interview with French magazine Le Point,
released on Wednesday.

“Such a speculation would be a sure-fire way of losing money given
the decisions taken last Thursday,” Trichet said.

At the emergency summit in Brussels last week, the 17 leaders of
the Eurozone, along with the ECB and the International Monetary Fund,
pledged E109 billion euros to help reduce Greece’s debt problems and
agreed the broad outlines of a plan to involve private investors in a
restructuring of Greece’s debt, through bond swaps, rollovers and debt
buy backs.

New flexibility for the EU’s emergency bailout fund, the European
Financial Stability Facility, was also agreed.

“The proposals from the private sector and the decisions of the
European governments, i.e. lowering interest rates and extending the
duration of the loans, will ease Greece’s debt service burden
considerably. Furthermore, the outstanding debt will decrease through
bond swaps and debt buybacks,” the ECB chief said.

“But what is important is that Greece carries out the adjustment
itself, helped by this very important decrease of the yearly service of
the debt,” Trichet added.

Greece, he said, “needs to return to a path of sound governance as
quickly as possible, i.e. it needs to restore its budget to health,
implement a rigorous privatisation programme and carry out essential
structural reforms,” the ECB President said.

Trichet rejected suggestions that the EU was simply bailing out
Greece. “The Europeans are not subsidising Greece to never see their
money again. They are investing in its recovery. Of course, they need to
monitor their investment closely,” he said.

“Greece is committed to doing everything, and will do
everything — under the strict surveillance of Europe, which is
something we have always called for — to restore confidence, regain
stability and pay back its loans from Europe,” he stressed.

Trichet also dismissed the idea that Greece and other
heavily-indebted EU governments were a risk to the stability of the
common currency.

“The pressure observed on sovereign risks is not solely a European
problem, it is also a global problem. The United States and Japan also
have major fiscal problems,” he said.

He said the euro itself was not threatened. Rather, there is a risk
to financial stability in the euro area because of Greece’s fiscal
problems. “The euro is not in question: it is solid,strong and
credible,” he stressed.

Asked if he thought Greece might end up leaving the euro, Trichet
replied that “not for a minute did anyone consider that option.”

Prior to last Thursday’s deal, the ECB had appeared at odds with
some Eurozone governments, particularly those of Germany, the
Netherlands and Finland, over the private sector’s participation in
Greece’s second rescue package.

These governments had made substantial private sector involvement a
requirement of additional aid to Greece, while the ECB had stressed the
importance of voluntary participation by private creditors, and argued
that a “credit event” or a “selective default” should be avoided.

Trichet told Le Point that the ECB’s advice on voluntary
participation had been heeded. And that a credit event “at the moment”
looks to have been avoided.

While credit rating agencies have indicated that they are likely to
consider the private sector’s role in the bailout as a selective
default, Trichet said that the ECB had secured the guarantees it needed
to protect itself.

Trichet recalled he had told EMU leaders that, “in the event of
such a default, governments would have to recapitalise the banks
and provide credit enhancement for the collateral accepted by the ECB
for its refinancing operations. We secured this guarantee which
was essential to protecting the integrity of the ECB in the event of a
‘selective default.”

On the role of the credit rating agencies, Trichet argued that “the
patently oligopolistic way in which [they] work is certainly not optimal
in terms of market organisation.”

This dynamic “fuels the creation of bubbles during cyclical upturns
and exacerbates the busts during cyclical downturns,” he said.

While these failings “must be addressed,” doing so will be
difficult, he said.

Trichet said his personal belief was that in the future Europeans
would eventually create “an entirely new type of confederation of
sovereign states, which would not be a carbon copy of the United States
of America.”

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