The European Central Bank said on Thursday it opposed forcing private creditors to take part in debt relief for Greece, pushing back against Germany, which has demanded a bond swap to lengthen Greek debt maturities. ECB President Jean-Claude Trichet signalled the hard line at the bank's monthly news conference, as new figures from Athens showed the Greek economy shrank by 5.5 percent in the first quarter of the year, a far sharper rate than expected.
The data cast fresh doubt on Greece's ability to meet targets for cutting its budget deficit, part of a 110 billion euro bailout agreed with the European Union and the International Monetary Fund in May last year. The EU is now considering another aid package for Athens, and eurozone sources told Reuters on Thursday the new deal would total about 120 billion euros, with the EU and IMF providing up to half of that sum and the rest coming from Greek privatisation revenues and private creditors. How to involve the private sector is hotly contested within the single currency bloc.
German Finance Minister Wolfgang Schaeuble wrote to Trichet, the IMF and his eurozone partners earlier this week and proposed a swap in which private debt holders would trade in their Greek government bonds for new ones, giving Greece an extra seven years to work through its debt.
But ratings agencies said on Thursday that it might be impossible to conduct such a swap on a voluntary basis, while Moody's Investors Service warned a Greek default could impact the ratings of Ireland and Portugal, the two other eurozone countries that have required bailouts. A group of German academics filed a legal challenge to the rescues a year ago, and Germany's top court is to hold a hearing on their suit on July 5. EU leaders aim to agree on the new aid package for Greece at a June 23-24 summit in Brussels.
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