Banks in Greece won't pay extra due to country's poor credit rating
GREECE will not default, and could receive loans from other euro states at lower borrowing costs than it faces in the markets, ECB president Jean-Claude Trichet said yesterday.
The ECB lent its own helping hand yesterday, saying it will not charge extra for loans to banks based on the rating of their country's government debts. This will mean that Greek banks will not pay extra due to the country's weak credit rating.
"It's good for Greece, because the expectation was for an additional 'haircut'," said Laurent Bilke, an economist at Nomura International Plc in London.
"The fact that government bonds are basically excluded from the new haircut regime means Greece gets to keep the status quo for now."
Speaking after the ECB left interest rates unchanged at its monthly policy meeting, Mr Trichet said a default "is not an issue" for Greece.
He had no reason to suppose that the Athens budget correction programme would not be implemented rigorously.
Markets have taken fright at the uncertainty over the €30bn EU rescue package for Greece. Mr Trichet said that while euro governments should not subsidise rescue loans they could charge the rate they themselves can borrow at. France and Germany can both raise debt at more than 4pc less than yesterday's Greek rates, as can some smaller euro members.
Mr Trichet again disputed that he had opposed IMF involvement in any support for Greece, but made clear that the ECB still thinks funding is a euro area matter.
"We never said the IMF doesn't have very good expertise," he said, "The position of the ECB has always been to say that we wanted the governments of the euro area to be up to their responsibility," he said.
"The ECB President endured an extremely uncomfortable grilling from journalists on the nature and extent of support being offered to the Greek government," said Austin Hughes, chief economist at KCB Bank in Dublin.
"Time and again, Mr Trichet tried to persuade journalists that these changes weren't designed to support Greece, but he met with little success. There was a sense that inconsistencies in official European positions on Greece are becoming less and less sustainable."