by Charles Forelle
Wall Street Journal
June 10, 2011
At a press conference Thursday, Jean-Claude Trichet drew his line in the sand. "No credit event," the European Central Bank president said. "No selective default."
As sandy lines go, this one was pretty technical. But in the Greek debt crisis, words mean a lot, and the nub of jargon is essential to understanding the impasse between the ECB and a German-led bloc that wants Greece's private creditors to bear some of the burden in the fresh rescue of the flagging country that's expected this month.
Germany's finance minister has pushed for a bond swap that would result in investors getting new debt that's paid back later than the old debt. The ECB, Mr. Trichet made clear, is flatly opposed to hurting creditors in any way.
Look at his words: "Credit event" is generally assumed to mean an event that triggers the payment of credit-default swaps, a form of insurance on bonds. Whether something is a credit event is determined by a trade association of market participants. The details are complex, but the group might not view a voluntary bond exchange of the sort Germany wants as a credit event.
"Selective default" is a very specific term, and Mr. Trichet's deployment of it is telling. It is used by ratings company Standard & Poor's to denote issuers that have at least one bond in default but are still honoring others. (Issuers that have stopped making all interest and principal payments are given the D rating.)
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