The European Central Bank’s chief said it could not accept defaulted bonds as collateral and that governments would have to intervene and correct things were Greece government debt to be rated as a default.
ECB President Jean-Claude Trichet, in the interview with Financial Times Deutschland conducted on July 14, criticized euro zone governments for their crisis management in the bloc’s sovereign debt crisis, saying they needed more discipline.
“If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral,» he told the newspaper in an interview to be published in its Monday edition.
“The governments would then have to step in themselves to put things right … the governments would have to take care the Eurosystem is presented with collateral that it could accept.”
But Trichet did not elaborate on what options governments had to make sure liquidity would be secured in case of a default.
Were Greek banks, which are major holders of the country’s sovereign debt, unable to use government bonds as collateral in ECB liquidity operations, they would face a cash crunch.
Turning to governments’ handling of the debt crisis, he said they should work on a consistent message.
“There is an absolute need to improve ‘verbal discipline’. The governments need to speak with one voice on such complex and sensitive issues as the crisis,» Trichet said.
Asked about the ECB’s opposition to the private sector taking a hit to help solve the Greek debt crisis, Trichet said that in general terms, the sector’s role is to provide hard-hit countries with funds by buying state assets and investing in them.
“All over the world, the best private-sector involvement is foreign direct investment, privatization and going back as soon as possible to spontaneous market financing.”
Trichet also said the euro currency was in no danger.