Financial Times
July 21, 2011
Private creditor participation in Greece’s latest rescue programme will be very strictly limited to the Greek crisis and will be specifically excluded as a model for any other eurozone country in financial difficulties, according to officials closely involved in the eurozone negotiations in Brussels.
A proposal for bond swaps for all Greek government debt falling due for repayment up to the end of 2019 has emerged as the central element in the scheme, although the eurozone governments now accept that such a plan would almost inevitably trigger a “selective default” declaration by credit rating agencies.
Agreement on a very strict definition limiting the bondholder participation to Greece was reached by France and Germany on Wednesday night in order to reassure Jean-Claude-Trichet, president of the European Central Bank, to relax his outright hostility to any scheme that might prompt such a selective default.
According to the officials, any declaration of default would only be triggered when the bonds are actually exchanged and could be limited to “a very few days”. If the declaration were then rescinded, the ECB would be able to resume accepting Greek debt as collateral for providing liquidity to the Greek banks that are the principal private creditors.
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