EU leaders differ over Greek default

Financial Times
July 8, 2011

A warning by Jean-Claude Trichet, head of the European Central Bank, for European leaders to avoid even a selective default on Greek debt threatens yet again to pit the ECB chief against national governments, who are moving towards a plan that could do exactly that.

European finance ministers have been struggling for more than a month to come up with a second bail-out of Greece that would involve private bondholders contributing to the €115bn ($165bn) rescue either by voluntarily buying new Greek bonds when their current holdings come due or swapping large portions of their holdings for new, longer-maturing bonds.

But debt rating agencies have indicated that even the less onerous option – the voluntary roll-over – will lead them to declare a “selective default”. This means certain Greek bonds will be considered not fully redeemed.

Eurozone governments recently said such a move would be anathema. After a conference call, finance ministers said a new bail-out would be put together “while avoiding selective default”.

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