ECB’s Noyer Rejects Greek Restructuring as ‘Horror:’ Transcript
Bloomberg
By Mark Deen – May 24, 2011
The following is a transcript of remarks made by Christian Noyer, governor of the Bank of France and a member of the European Central Bank’s governing council. He spoke to journalists in Paris today.
The first section constitutes a statement made by Noyer. The remainder is from a question-and-answer session. Noyer spoke in French.
“If we restructure Greek debt, that means Greece defaults.”
“And what are the consequences of a default? The banks with the most Greek bonds are Greek banks. The Greek banks themselves will be badly damaged. When the banking system is stricken, what do you have to do to prevent the financing of the economy from collapsing? You have to recapitalize the banks. Who will recapitalize the Greek banking system? The Greek state.”
“That means the Greek state will gain nothing. It will invest in the banking sector everything that it has gained in the restructuring.”
“Next there are the Greek insurers and pension funds” who will be hurt. “That means it will weigh on the Greek population’s savings, which could cause a drop in consumer spending and Greek growth will take a hit. This counters the Greek recovery.”
“Then, what else is there in terms of Greek creditors? There’s the European public sector, European governments and the central banks. This is directly tapping the European taxpayer.”
“If we make European states pay, the mechanism of European financing will stop immediately. The states will not continue putting their taxpayers’ money on the line when their loans have just been cleaned out, when they’re taking losses on the money they’re lending. So that’s the end of support from other European states.”
“And for the central banks, what happens? Greek debt will become debt that is no longer worth anything. It’s no longer debt that can be considered as sufficiently safe for operations in the Euro System. That means by definition that to restructure is to become ineligible as collateral. If it’s ineligible, then it means a large part of what the Greek banks bring as collateral for refinancing can no longer be used. That means the Greek banking system can no longer be financed.”
“The next day what happens? Greece needs to find investors because the Greek state won’t move from deficit to surplus overnight. As long as it doesn’t have a primary surplus, the Greek state needs to borrow. International investors, that small group that remains, have just been restructured. It’s not the next day they’ll come back with financing.”
“The Euro System won’t refinance. The European states won’t finance. The IMF won’t go there alone. No one will finance the Greek state in coming years. That means the meltdown of the Greek economy. This is a horror story. That’s why we’re against a restructuring.”
On rescheduling of debt:
“The lengthening of maturities brings very difficult legal questions. There’s a strong chance it will be the equivalent of a default.”
On austerity, asset sales:
“There is another possibility, which is to apply the program. To reduce the stock of debt, the only solution is ambitious privatization. There is no other solution.”
“When we’re in a monetary union and you need to restore your competitiveness, it is necessary to have the equivalent of an internal devaluation. Cut production costs. There is no other solution.”
“The budget adjustment that is being asked for — they’re difficult measures but they’re doable. The IMF has been doing these programs for years. It knows what is doable.”
“Restructuring is not a solution, it’s a horror story. You have to make decisions that are in the interest of the country and its citizens. The best option is the program.”
“Time isn’t a way of lightening the program. A bit more time may be necessary. The program might be longer. The measures are necessary in any case. It’s the same effort over more time.”
“We won’t convince other European countries or the IMF to provide support unless there is a strict application of the program.”
On the ECB refusing Greek debt as collateral:
“What is the fundamental principle that we have to observe? We must, in monetary policy operations, refinancing, take sufficient guarantees. All the central banks of the world do this. You need good-quality collateral. You set the bar at a certain level. We took a simple rule. You need single-A debt as a minimum.”
“During the crisis, given pressure on assets, we accepted temporarily to reduce our minimum level of collateral to BBB. Then the sovereign-debt crisis arrived, the Greek crisis, ratings cuts for Greece.”
“We decided at that moment that when there is a European Union-IMF program that we support, we considered” the assets “were the equivalent of BBB. If the program is no longer respected, if a country is found off track, immediately our assumption of BBB disappears. If it goes out of the EU program, the collateral is ineligible.”
“If the debt is restructured, you can’t say it’s debt of good quality. We need collateral of very good quality. It’s a simple application of reasoning. Ipso-facto, the collateral can no longer be accepted.”
“Don’t think for a minute that we’re against restructuring because French and German banks have Greek bonds. The problem is for Greece itself.”
To contact the reporter on this story: Mark Deen in Paris at [email protected]
Original story
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