Bloomberg News

ECB’s Mersch Says Greece Must Avoid Non-Voluntary Restructuring

October 24, 2011

(Click EXT4 <GO> for more on the European debt crisis.)

Oct. 24 (Bloomberg) -- European Central Bank Governing Council member Yves Mersch warned against forcing banks to accept higher losses on their Greek bond holdings.

“It is advisable to avoid any restructuring that is not purely voluntary or that shows elements of compulsion, and to avoid any credit events and selective default or default,” Mersch said today in Montreux, Switzerland, according to a speech published by Luxembourg’s central bank, which he heads. “Amid growing market turmoil and the risk of contagion, an increasing number of economists call for debt restructuring in the affected countries. These proposals often share an anti-euro sentiment.”

The world’s biggest banks are squabbling with European leaders over the size of their writedowns as Greece teeters on the brink of default. The financial companies, represented by the Institute of International Finance, proposed a loss of 40 percent on Greek debt, said a person familiar with the discussions. The European Union is calling on investors to forfeit as much as 60 percent, making a compromise at 50 percent possible, the person said.

Mersch said if a country’s debt burden becomes unsustainable, “a restructuring of sovereign debt cannot be excluded as ultimate resort,” and banks need to “be prepared for the worst.”

At a weekend summit, Europe’s leaders outlined plans to aid banks and ruled out tapping the ECB’s balance sheet to boost the region’s rescue fund, the European Financial Stability Facility.

“In order to eliminate any doubts on the sufficient fire power of the EFSF, governments of the euro-area member states should provide appropriate leveraging of the fund,” which is not to be confused with “monetization,” Mersch said.

Mersch reiterated the ECB’s opposition to any default, saying “the disadvantages outweigh the advantages of that sweet-seeming but poisoned temptation.”

--Editors: Matthew Brockett, Fergal O’Brien

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net;

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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