Bloomberg News

Juncker Says ECB ‘Red Lines’ Must Be Observed on Greek Debt

June 16, 2011

(Updates with comments from Mersch starting in fifth paragraph.)

June 16 (Bloomberg) -- The European Union must heed European Central Bank warnings about forcing bondholders to participate in a second bailout package for Greece, Luxembourg’s Jean-Claude Juncker said.

“We have to observe a certain number of red lines, mainly those mentioned by the ECB -- no default, no rating downgrades and the private-sector involvement has to be done on a voluntary basis,” Juncker, who leads the group of euro-area finance ministers, told reporters in Luxembourg today. “If we were to move to larger solutions, we have to take into account all the risks entailed.”

Juncker said the main stumbling block is determining a role for investors in the rescue. ECB policy makers have warned against German proposals that maturities on Greek debt be extended for seven years, an outcome rating companies have said would be considered a default. ECB President Jean-Claude Trichet said on June 9 that governments were flirting with what could be an “enormous mistake.”

German Finance Minister Wolfgang Schaeuble on June 10 stepped up his calls for bondholders to assume a “fair” share of further Greek aid. Germany must “insist on the participation of the private sector,” he said.

Merkel-Sarkozy Meeting

ECB Governing Council member Yves Mersch today renewed the central bank’s opposition to extending Greek bond maturities. “To politically enforce maturity extensions of Greek bonds held by private investors comes up short,” he said.

Not only have rating companies signaled that such a move would constitute a default, the ECB would not accept such bonds as collateral in its refinancing operations, Mersch said.

German Chancellor Angela Merkel meets in Berlin tomorrow with President Nicolas Sarkozy of France, which has indicated backing for the ECB’s position.

“I think that we’ll come to the conclusion that a slight, smart reprofiling will be the best way to deal with the problem, but it depends on the discussions we’ll have” in preparations for meetings of euro-area finance ministers in Luxembourg on June 19-20, Juncker said.

International Monetary Fund acting head John Lipsky will attend the meetings, Juncker said.

EU Economic and Monetary Commissioner Olli Rehn said today that views are converging over the German-led push to saddle bondholders with some of the costs of Greece’s longer-term rescue. He predicted an agreement next month on a three-year aid package including a “voluntary” rescheduling of Greek debt.

--With assistance from Jeff Black in Frankfurt, Alan Crawford in Berlin, Jonathan Stearns and James G. Neuger in Brussels. Editors: Patrick G. Henry, James Hertling

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at

To contact the editor responsible for this story: Anthony Aarons at

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