Wall Street Journal
June 7, 2011
When it comes to Greek bonds, Europe is trying to have its cake and eat it, too.
Germany and other strong euro-zone countries, trying to fashion a second bailout for Greece, want the country's private-sector creditors to bear some of the burden in exchange for granting new taxpayer money to Athens. The European Central Bank, however, backed by France, doesn't want to do anything that would cast Greece into default or trigger losses for banks that hold its government bonds.
The impasse deepened with a letter released Tuesday from German Finance Minister Wolfgang Schäuble to ECB President Jean-Claude Trichet and other euro-zone finance ministers. Reiterating Germany's approach, it rejected the milder option and called for a "quantified and substantial contribution" from private creditors.
At root is a consequence that is difficult to escape. Anything that meets Mr. Schäuble's demands and substantially hits Greece's creditors—and thus substantially reduces the amount of money Germany and others must put in—will also very likely be seen by credit-rating agencies as a default on Greek debt. It also will have at least some impact on banks' finances. Nearly 70% of the exposure to Greek government debt outside Greece is concentrated in French and German banks.
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