Trichet Wash His Hands Over Greece

Okay, so he was not bluffing… In an interview with Financial Times Deutschland, Monday, ECB president Jean-Claude Trichet repeat and clarify his stand on the Greek crisis: The ECB will not support Greece in case of a selective or plain default. He says the European governments will have to clean up their own mess if they manage to trigger the first national bankruptcy since 1948.

“If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral.”

Jean-Claude Trichet

The ECB boss is kicking off the most important week in the history of the euro zone by stating that the central bank will not support any additional measures to help Greece out of its financial mess if the country defaults on its debt. However, the German chancellor Angela Merkel do not exclude an agreement that would lead to debt relief for Greece. “The governments have been warned,” Trichet says.

“In the event of a decision by the governments leading to a selective default or a default, which, again, we are warning against loudly and clearly, the governments would have to take care that the euro-system is presented collateral that it could accept,”  Trichet states.

The ECB president have made similar statements before, but some analysts have dismissed the threat as a bluff.

They will now  have to think again.

In the FT Deutschland interview, Trichet makes it perfectly clear that it would be up to the governments to cope with the consequences should they decide on a partial debt buy back or any other solution in Greece that would trigger a selective default or a default.

“The governments have been warned, in no uncertain terms and using all possible means. I have said so publicly. I have explained in detail to the Heads of State and Government and to the finance ministers, on several occasions, that, if a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral.  The governments would then have to step in themselves to put things right. That would then be their duty,” he says.

At the same time German chancellor Angela Merkel says in an interview with the ARD summer that she do not exclude an agreement that would lead to debt relief for Greece.

Merkel says this is not the solution she was aiming for, and the undesirable side effect would be that it lowers the ambition of other countries to cut their debt.

She will also attend a summit set for Thursday, but only on the condition that an agreement is negotiated beforehand.

The negotiations have now become so complex that even the finance ministers can no longer follow the debate.

According to eurointelligence.com, is Angela Merkel afraid that if a summit were held without a technical agreement beforehand, she would be bulldozed into an agreement she do not want.

…and the crisis goes on…

Video extracts from the roundtable of the Foreign Affairs Council on 18 July in Brussels, provided by the EU Council press service.

Press conference expected at 17:30 CET.

Vodpod videos no longer available.

…and the crisis goes on…, posted with vodpod

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