August 18, 2022

Mario Draghi Holds E.C.B. Line Against Restructuring for Greece

BRUSSELS — With European governments divided over how to shape a new bailout for Greece, Mario Draghi, the likely next president of the European Central Bank, warned Tuesday against forcing private investors to take part.

At a confirmation hearing at the European Parliament, Mr. Draghi, the former head of the Bank of Italy, also highlighted the risk that a Greek default could set off a “chain of contagion.”

“All in all, the costs outweigh the benefits,” he said.

His comments came as European finance ministers held an unscheduled meeting in Brussels to try to bridge differences in the new package for Greece.

The E.C.B. has been firmly against any restructuring of Greek debt, in part because of its own holdings. The Dutch finance minister, Jan Kees de Jager, told his Parliament in The Hague on Tuesday that the E.C.B.’s total exposure to Greece might be €130 billion to €140 billion, or as much as $200 billion. In addition, the E.C.B. has provided €90 billion of liquidity to Greek banks, he said, according to Bloomberg News.

In his remarks, Mr. Draghi suggested that at least one of the options under discussion for involving the private sector would be acceptable to the E.C.B, but that the central bank “excludes all concepts that are not purely voluntary.”

One acceptable option is known as the Vienna Initiative, after a deal in 2009 under which international lenders agreed to roll over credit lines to Central and East European countries. That, he said, “looks entirely voluntary.”

“Another one is a debt exchange, which I haven’t understood whether it is voluntary or it could end up being involuntary,” he added.

Germany has taken the firmest line on involving the private sector. The German government has received parliamentary support for a second bailout of Greece if necessary, but only if there is a substantive and quantifiable involvement of the private sector.

The government wants the extension of debt maturities to be considered, and has received support from some other capitals.

“You can’t leave the profits with the banks and make the taxpayers shoulder the losses,” Austria’s finance minister, Maria Fekter, said on arrival in Brussels.

Other governments, like France, share the E.C.B’s worries that too harsh a solution could lead to a cascade of problems that would destabilize the euro zone.

The meeting Tuesday night was not expected to produce a breakthrough. “It’s sounding-board time, not endgame time,” said one E.U. diplomat, who was not authorized to speak publicly.

A deal could come Friday in Berlin, when the German chancellor, Angela Merkel, will meet the French president, Nicolas Sarkozy, before another gathering of European finance ministers Monday in Luxembourg.

In an assured performance before a committee of European deputies, Mr. Draghi stressed his commitment to price stability, the E.C.B’s main mandate.

On Greece, he argued that the effect of a default was difficult to predict. “Who are the owners of credit-default swaps? Who has insured others against a default of the country?” he asked. “We could have a chain of contagion.”

Meanwhile, in Athens, the fragility of the Greek government was highlighted when two of the controlling party’s deputies said they would not support its latest package of austerity measures, which are a quid pro quo for more international aid. That reduces the Socialist government’s effective parliamentary majority to just a handful.

Article source: http://feeds.nytimes.com/click.phdo?i=19f18500da34fc2257ac28767fcaa931

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