Eurozone's silence on selective default breaks taboo

Eurozone countries declined to reiterate opposition to the possibility of a selective default of Greek debt, a move officials said bolstered Germany's push to involve investors in easing Greece's debts despite the concerns of the European Central Bank (ECB).

Attempts to find a way of sharing the cost of Greece's debt burden with investors have so far been unsuccessful because debt rollover or extension plans would likely prompt rating agencies to place Greece in selective default. This is opposed by the ECB and could prompt it to pull funding for the country. On Monday, eurozone finance ministers reiterated their determination to resist contagion by examining how to help Greece but declined to rule out schemes that could prompt a selective default.

The ministers were expected to meet again late last night and it was more than evident that the issue of schemes that might trigger a selective default would be central to their discussions. Hours after Monday's meeting one country official was saying that avoidance on behalf of the eurozone ministers to rule out schemes that could prompt a selective default was a signal that countries were moving closer to sharing the cost of easing Greece's debt burden with investors, even should that result in ratings agencies viewing it as a selective default.

"That's progress," he said, adding that it boosted the chances of Germany's new plans to swap Greek bonds for fresh ones with a longer maturity. "I would read this as an acknowledgement by the member states that a selective default is going to be difficult to avoid. It removes an obstacle to the participation of the private sector."

The ECB reiterated its opposition in the eurozone announcement. "It's clear from the statement that the ECB's concerns are not being catered for," said one EU official. France's new finance minister Francois Baroin also said that options to ease Greece's debt burden that may trigger a selective default would be discussed over the coming days. His remarks contrast with the strong opposition declared by the French government to anything that would trigger this result.

Source: Athens News