Countries pay higher price for defaulting on debt, says ECB's Noyer
European Central Bank governing council member Christian Noyer said countries pay a higher price for defaulting on debt than by repaying it, reinforcing the ECB view that euro nations should rule out financial restructuring.
"People forget to look at what happens when a country defaults, which is something I have been studying for several decades," Mr Noyer said at the weekend.
"Financial markets make you pay for the default with higher interest rates. They make you pay for the present value of losses, plus a big premium with the uncertainty linked to that. You pay much more by defaulting than by not defaulting."
Debate over whether countries such as Greece and Ireland could or should meet their commitments to bondholders has scared financial markets in recent weeks as they struggle to sustain debt burdens that will equal or exceed 100pc of gross domestic product in coming years.
Germany led the push for bondholders to share the cost of addressing sovereign debt problems, causing a jump in borrowing costs for heavily indebted European countries.
The position was later watered down, when EU finance ministers agreed that any debt restructurings would have to be considered on a "case by case" basis, rather than made automatic in the event of bailouts.
Bank of Ireland might have its offer to swap subordinated bonds classified as a "distressed exchange" with the notes deemed to be in default, the rating agency Moody's said last week.
"If the exchange occurs on the terms announced, Moody's would likely classify this transaction as a distressed exchange and downgrade the affected securities to Ca," the ratings firm said.
"A distressed exchange is a form of default," Moody's said.