ECB president 'isolated' in restructuring debate
Bank chief Trichet has reportedly walked out of meetings about Greece's debt crisis
ECB president Jean-Claude Trichet has found himself increasingly isolated as Europe's politicians and policymakers move towards a limited form of restructuring for Greece's €328bn of debt.
Reports circulated yesterday that Mr Trichet was walking out of meetings with some European policymakers in recent days over the idea, but observers believe the process is now being controlled by politicians, not the Frankfurt-based bank.
"The ECB is playing its last card but unfortunately the restructuring debate has now been so politicised that it seems the decision is now somewhat remote from the central bank," Jacques Cailloux, a euro region economist with RBS said.
Executive board members at the bank, as opposed to its national central bank members, are opposed to lengthening the maturities on Greek debt, a so-called "soft restructuring''.
One of these members, Jurgen Stark, has talked about a "catastrophe'' if this form of restructuring was allowed.
Mr Stark claimed this week the ECB would not be able to accept Greek bonds which have been restructured as collateral in exchange for funding Greek banks.
But this view was questioned by RBS in a note, which said that the ECB had discretion over collateral rules and there was no legal impediment to helping the Greek banks, even after a form of restructuring.
Many economists say a restructuring of the debt is inevitable, but European governments have promised not to force losses on creditors before mid-2013.
"For the ECB, according to our statutory obligations, a debt restructuring would undermine the collateral adequacy of Greek government bonds," Mr Stark said.
"This means that a debt restructuring would make the continuation of large parts of central bank liquidity provision to the banking system of Greece impossible,'' he added.
The comments, and a report in the 'Financial Times Deutschland', that Mr Trichet had issued the same warning to eurozone finance ministers in a heated meeting of the Eurogroup on Monday, weighed on the euro.
However, while Mr Trichet is independent, support for a restructuring would be hard to resist once Germany and France climb on board.