by Richard Barley
Wall Street Journal
June 9, 2011
Crunch time. The European Central Bank has been scathing about the way the Greek debt-restructuring debate has been conducted in public. President Jean-Claude Trichet shut down all debate about restructuring at May's rate-meeting news conference. But Germany's apparent wish to enforce a debt swap on Greek bondholders means Mr. Trichet won't be able to avoid cross examination on the topic Thursday.
Whether or not Mr. Trichet uses the code word "vigilance," indicating a rate increase in July, at the ECB's monthly news conference now seems almost a side issue. The consensus is that he will, with the ECB valiantly hanging on to its inflation-busting credentials even in the light of some softer growth data. But Germany's call for Greek bond maturities to be extended for seven years has forced the ECB into treacherous political waters.
German Finance Minister Wolfgang Schaeuble wants private creditor participation in a new Greek aid package to go beyond a voluntary rollover, a compromise proposal that appeared to be gaining support at the start of the week. That caused peripheral bond yields, which had started to decline, to jump higher Wednesday. Ratings companies had already indicated they might classify even a rollover operation as a default; a seven-year maturity extension seems almost certain to count as a default.
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