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Weidmann-Reprofiling would cut off Greece from ECB funds
HAMBURG, Germany | Fri May 20, 2011 9:46am EDT
HAMBURG, Germany May 20 (Reuters) - Lengthening maturities on Greek bonds would make it impossible to accept them as collateral in lending operations, cutting off funding to much of Greece's financial sector, a top ECB policymaker said on Friday.
Germany's Jens Weidmann reinforced the ECB's opposition to a "soft restructuring" via maturity extensions -- an idea raised by European finance ministers this week and opposed by another ECB heavyweight, Juergen Stark, on Wednesday.
"'Reprofiling' Greek bond maturities cannot substitute for fulfilling the adjustment programme," Weidmann, the new chief of Germany's Bundesbank, told a central bank conference in Hamburg.
"Furthermore, a prolongation of Greek government bonds in an environment of prevailing strong doubts about the sustainability of public finances would make it impossible to accept them as collateral for refinancing operations under the existing rules of the Eurosystem's collateral framework," he said.
"Consequently large parts of the Greek financial sector would be cut off from funding."
The risks of contagion to other countries would also rise significantly, Weidmann said.
"Hence, proposals for such a step seem to assume implicitly that the Eurosystem would provide financial means against insufficient collateral. But such a monetisation of public debt cannot be tolerated," he added.
ECB officials have warned for weeks that a debt restructuring would have catastrophic consequences for the euro zone and stepped up their rhetoric this week after Eurogroup Chairman Jean-Claude Juncker suggested the bloc was open to a voluntary extension of Greek debt maturities.
The central bank may also be concerned about the effect of a restructuring on its own books. It has bought an estimated 40-50 billion euros in Greek sovereign debt as part of its controversial bond-purchasing programme and has indirect exposure via the tens of billions of euros in Greek paper it has already accepted as collateral in its lending operations.
ONUS ON GREECE
If Greece's fiscal adjustment programme turns out not to be on track, "it is first and foremost up to Greece itself to take appropriate additional steps", Weidmann said in his first public comments on the Greek debt crisis.
Deviations from fiscal adjustment programmes should be corrected swiftly and convincingly, he said.
"If a country fails to do so, further support should no longer be taken for granted and the country should be prepared to bear the severe consequences that are likely to ensue once financial assistance is withdrawn," he said.
Turning to monetary policy, Weidmann warned against using non-standard policy measures for too long. For the ECB, these include the unlimited liquidity operations it uses to help banks in the periphery that are frozen out of interbank markets.
"Sticking to non-standard policy measures for too long will not only change the perception of risk in financial markets in an undesired manner but will also preserve inefficient banking structures," he said.
"Overdoing expansionary policies will rather start a new and probably even worse crisis instead of bringing the current crisis to an end," he said.
(Bloomberg)
***
Prime dichiarazioni di Weidmann della Banca Centrale Tedesca: bastone e carota, il messaggio della Merkel.
HAMBURG, Germany | Fri May 20, 2011 9:46am EDT
HAMBURG, Germany May 20 (Reuters) - Lengthening maturities on Greek bonds would make it impossible to accept them as collateral in lending operations, cutting off funding to much of Greece's financial sector, a top ECB policymaker said on Friday.
Germany's Jens Weidmann reinforced the ECB's opposition to a "soft restructuring" via maturity extensions -- an idea raised by European finance ministers this week and opposed by another ECB heavyweight, Juergen Stark, on Wednesday.
"'Reprofiling' Greek bond maturities cannot substitute for fulfilling the adjustment programme," Weidmann, the new chief of Germany's Bundesbank, told a central bank conference in Hamburg.
"Furthermore, a prolongation of Greek government bonds in an environment of prevailing strong doubts about the sustainability of public finances would make it impossible to accept them as collateral for refinancing operations under the existing rules of the Eurosystem's collateral framework," he said.
"Consequently large parts of the Greek financial sector would be cut off from funding."
The risks of contagion to other countries would also rise significantly, Weidmann said.
"Hence, proposals for such a step seem to assume implicitly that the Eurosystem would provide financial means against insufficient collateral. But such a monetisation of public debt cannot be tolerated," he added.
ECB officials have warned for weeks that a debt restructuring would have catastrophic consequences for the euro zone and stepped up their rhetoric this week after Eurogroup Chairman Jean-Claude Juncker suggested the bloc was open to a voluntary extension of Greek debt maturities.
The central bank may also be concerned about the effect of a restructuring on its own books. It has bought an estimated 40-50 billion euros in Greek sovereign debt as part of its controversial bond-purchasing programme and has indirect exposure via the tens of billions of euros in Greek paper it has already accepted as collateral in its lending operations.
ONUS ON GREECE
If Greece's fiscal adjustment programme turns out not to be on track, "it is first and foremost up to Greece itself to take appropriate additional steps", Weidmann said in his first public comments on the Greek debt crisis.
Deviations from fiscal adjustment programmes should be corrected swiftly and convincingly, he said.
"If a country fails to do so, further support should no longer be taken for granted and the country should be prepared to bear the severe consequences that are likely to ensue once financial assistance is withdrawn," he said.
Turning to monetary policy, Weidmann warned against using non-standard policy measures for too long. For the ECB, these include the unlimited liquidity operations it uses to help banks in the periphery that are frozen out of interbank markets.
"Sticking to non-standard policy measures for too long will not only change the perception of risk in financial markets in an undesired manner but will also preserve inefficient banking structures," he said.
"Overdoing expansionary policies will rather start a new and probably even worse crisis instead of bringing the current crisis to an end," he said.
(Bloomberg)
***
Prime dichiarazioni di Weidmann della Banca Centrale Tedesca: bastone e carota, il messaggio della Merkel.
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