Trichet to resist moves to restructure Greek debt

THE EUROPEAN Central Bank chief Jean-Claude Trichet said he will continue to resist any move to restructure Greek debt as new figures showed the country’s ailing economy is shrinking at a faster rate than forecast. Workers in companies earmarked for privatisation also walked off the job yesterday.

Greek gross domestic product dropped 5.5 per cent in the first three months of this year, much greater than an earlier estimate of 4.8 per cent, as the existing wave of austerity measures took their toll on the economy.

The country’s prime minister, George Papandreou, has been trying for days to win the support of his government for a new austerity plan, which would trim €6.4 billion from its budgets and billions more over the next three years.

Deep divisions within his PASOK Socialist party have intensified pressure on Mr Papandreou, as he faces demands from the country’s international sponsors to forge a national consensus on the austerity measures in the next phase of the country’s bailout.

His failure to forge this consensus casts doubt over whether Mr Papandreou will be able to secure sufficient support from its European partners for the second bailout package required to bring the country through a funding crunch next year.

Workers on the Athens metro and bus service staged strikes yesterday and staff from companies earmarked for privatisation also held a protest march. A national strike is to take place next week.

Although the EU authorities want to settle the Greek question at a summit in Brussels in two weeks’ time, they are divided over the nature and extent of measures to relieve some of the burden of the country’s €340 billion debt.

Mr Trichet did not rule out support for an initiative in which Greek creditors would voluntarily renew or roll over debt as it fell due but said it was not the ECB’s intention to roll over its own holdings if such an initiative went ahead.

Moody’s rating agency questioned the merit of such a plan yesterday, saying it was “hard to imagine” investors volunteering to take part in an effort of that kind.

The agency said there was no such thing as a default that was “both orderly and meaningful” raising questions as to the potential effectiveness of a mooted plan to ease some of the financial pressure on the beleaguered Greek government.

Moody’s also said any Greek default would increase the risk of Ireland and Portugal – currently the other two bailout countries in the euro zone – being unable to fulfil their debt repayments.

ECB opposition to any restructuring of Greek debt has brought the bank into conflict with Germany, whose finance minister Wolfgang Schäuble wants a “quantified and substantial” contribution from private investors as part of any new bailout plan.

While Berlin has indicated it is not willing to support such a package if private investors do not participate, Mr Trichet said he was not embarking in a dialogue with any “particular minister” over Greece.

“We are not in favour of restructuring, haircuts and so forth,” he told reporters. “We exclude all concepts which would not be purely voluntary, without any elements of compulsion.

“We call for avoiding any credit event and selective default. And, of course, default.”

Mr Trichet was speaking as the ECB held interest rates steady but signalled a second rise in three months in July.