EU Said to Consider Greek Guarantee to Offset ECB Default Angst
July 21 (Bloomberg) -- Euro region governments are considering a guarantee of Greek bonds in the event of any default, which could make it easier for the country’s banks to keep tapping the European Central Bank for emergency funds, said two officials familiar with the talks.
Policy makers would aim to keep any period of default as short as possible, said an EU government official, who spoke on condition of anonymity because the talks leading up to a summit in Brussels today are confidential. Greek bonds could be backed up by top-rated securities issued by the European Financial Stability Facility, an official from a national central bank said. No decisions have been taken.
ECB President Jean-Claude Trichet has been at loggerheads with EU leaders about allowing Greece to default, an event he says would risk sparking a new global financial crisis. Trichet, who meets government chiefs in Brussels today, says the ECB can’t accept defaulted Greek bonds as collateral in money market operations, a step which would cut off funds to Greek banks.
German government officials have signaled that a restructuring of Greek debt may be inevitable as governments try to carve out a second bailout package for the debt laden country.
The 440 billion-euro ($627 billion) EFSF fund, overseen by euro nation governments, was set up last year to raise emergency fund for debt-strapped nations. In June, it put on sale 5 billion euros of 10-year notes at a yield of 3.49 percent.
So far, the fund has not been used for Greece even though it has co-financed the Irish and Portuguese rescue packages.