July 19, 2011
European Central Bank council member Ewald Nowotny suggested the bank may compromise and allow a temporary Greek default as officials scramble to fix a sovereign debt crisis that’s spreading to Italy and Spain before a leaders’ summit in two days.
As Spanish financing costs surged at a 4.45 billion euro ($6.31 billion) treasury bill auction today, policy makers are trying to ease a split that’s pushed interest rates on Spanish and Italian 10-year debt above 6 percent for the first time since the euro debuted 12 years ago. The ECB has until now argued that any Greek default could spark a new financial crisis, derailing a German push to make investors help foot the bill for a second bailout of the country.
“Nowotny is well known as someone who talks a lot,” said Nick Kounis, head of macroeconomic research at ABN Amro Bank NV in Amsterdam. “He might be revealing that there’s a little bit more flexibility than what was perhaps assumed. On the other hand, we have to be a bit careful with Nowotny. I’d be cautious.”
Nowotny, who heads Austria’s central bank, issued a statement today concerning the “interpretation” of his earlier comments in an interview with CNBC. He is in “complete agreement” with ECB President Jean-Claude Trichet that the aim is to “avoid any situation that would make it impossible for the ECB to continue to accept Greek sovereign bonds as collateral,” the statement said.
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