Financial Times
May 22, 2011
At least European leaders can agree on Christine Lagarde, France’s finance minister, as the next managing director of the International Monetary Fund. But behind this display of unity, a war is raging over how to solve the Greek debt crisis as we enter the most dangerous phase of the crisis yet.
We have known for some time that the European Central Bank is hostile to any form of debt restructuring. This also includes a “voluntary” extension of the maturity of Greek debt. European finance ministers have invented a new word for this: “reprofiling” – a well-known expression taken from the field of cosmetic surgery.
What we did not know before was quite how strongly the ECB feels about this. Jean-Claude Trichet, ECB president, stormed out of a meeting with finance ministers on May 6. This was the famous super-secret meeting whose very existence had been denied by officials. The ECB has since stepped up its rhetoric, and is now threatening to deny Greek banks access to the ECB’s refinance operations after any restructuring.
Think about this for a second. Cutting Greece off from ECB liquidity would constitute a dramatic escalation of the eurozone debt crisis. It would force Greece out of the eurozone within days. You could say that the ECB is threatening to create so much mayhem in the financial system that the monetary union would effectively collapse.
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