–Adds Comments On ECB’s View On Debt Crisis

PARIS (MNI) – Debt rescheduling is not an appropriate way out of
the sovereign crisis, European Central Bank Governing Council member
Christian Noyer said Tuesday.

In his introductory letter to the annual report of the Bank of
France, which he heads, Noyer said that “compliance with strict,
rigorous conditionality is crucial to the design and implementation of
the adjustment plan.”

“It is a dangerous illusion to think that such conditionality can
be relaxed by virtue of debt reduction or rescheduling. On the contrary,
such operations do not in themselves provide any new financing. They
always lead, at least initially, to a further drop in confidence and
lower capital inflows, which increases the adjustment effort needed.”

Mechanisms established to resolve crisis “should, of course, only
be used as a last resort and cannot replace the effective prevention
provided by continuous fiscal discipline,” Noyer said.

In presenting the report to the media, Noyer explained that “at the
heart of the concern” of the ECB is the financing of the Greek economy
and the risk of contagion, not the Greek debt paper the ECB itself holds
or the fallout for European banks.

At the same time, he made clear that the ECB could not accept for
refinancing any Greek paper facing default or where there was a risk of
default. Default would also mean that other potential creditors would
avoid Greece for a long time, he warned.

Ahead of the meeting of Eurozone finance ministers this evening,
Noyer gave a clear message: “If a solution for the debt can be found
that avoids the risk of default, that would be acceptable. If you don’t
find one, it would be better not to touch [Greece's] debt. If you
touch the debt after all and provoke the risk of default, you must be
ready to finance the Greek economy entirely yourselves.”

Any intermediate solution must be “entirely voluntary” and not lead
to default or the “risk of default,” he insisted.

Asked whether Greece might be able to roll over its debt with a
haircut of 30% provided the new issues were backed by guaranteed assets,
Noyer said, “This is no doubt an approach that could be explored.”

If the collateral that Greek banks provided were “indisputably
guaranteed” it could be considered of “good quality” acceptable by the
ECB, he suggested.

However, rather that focusing on reducing the debt burden
artificially, Greece should implement its adjustment program “extremely
rigorously”, including the planned privatization, and attract fresh
foreign capital.

“Our view is that this could be enough,” Noyer said, citing the
success of “hundreds” of IMF programs in recent decades.

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