European Central Bank policymaker Athanasios Orphanides called for euro zone leaders to abandon plans to make private sector investors help reduce Greece's debts, but his push showed no sign of gaining any traction in Europe's capitals on Friday.
Orphanides, who is also the central bank governor of Cyprus, said in a newspaper column that dropping plans to force losses on private sector holders of Greek debt would "help restore trust" in the eurozone and lower the borrowing costs of other governments in the currency union.
The involvement of the private sector in the Greek bailout has eroded investor confidence in eurozone sovereign debt and raised pressure on borrowing costs, despite policymakers' efforts to reassure markets that Greece is an isolated case. "Reversing the Greek private sector involvement decision would also raise the financing costs on the Greek government, but by restoring trust in the eurozone it would reduce the financing costs of other eurozone governments," Orphanides wrote in the Financial Times.
A 30-year loan to Greece on a low interest rate from other countries could accompany the reversal of private sector involvement, he said, helping to keep its financing costs in line with present fiscal plans. One eurozone government official said that behind the scenes there was no talk of dropping PSI for Greece. An ECB spokesman declined to comment on whether Orphanides' views represented the position of the ECB as a whole.
However, the ECB warned government leaders when they set out on a path of private sector involvement (PSI) in 2010 that the policy posed a risk for investors' trust in sovereign debt. A eurozone central bank official noted that Orphanides had published his comments ahead of fresh talks this month on Greek PSI and that Cypriot banks are heavily exposed to Greek debt. Banks and investment funds have been negotiating with Athens for weeks on a PSI scheme under which they will accept a nominal 50 percent write-down on their Greek bond holdings in return for a mix of cash and new bonds.
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