ECB chief defends euro deal

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European Central Bank chief Jean-Claude Trichet defended the new Greek debt deal, stressing the importance of the bank's stability in comments to be published in a German newspaper Saturday.

The financial stability of the central bank is not negotiable, he told the Sueddeutsche Zeitung.

EU leaders "have accepted that and decided to recapitalise the Greek banks and earmark a pledge of 35 billion euros to enhance our collateral in case of any possible selective default", he told the paper.

European leaders were celebrating a new Greek debt deal Friday, with Prime Minister George Papandreou saying the second package had freed his country from "the nightmare of default".

But Trichet insisted that the eurozone would use its crisis fund to guarantee Greek bonds during any partial debt default to enable the European Central Bank to continue financing private banks.

This crisis fund, the European Financial Stability Facility (EFSF), will guarantee Greek bonds and in return the ECB will continue accepting them as collateral.

The ECB had stressed to governments the need to avoid compulsory private sector involvement; to avoid a credit event; and to avoid a selective default, he told the paper.

So far, the governments had followed their advice on the first two points, he added: "With regard to the third piece of advice, we will see what happens."

As eurozone leaders wrapped up the deal on Thursday, Trichet insisted that the new Greek bailout would not trigger a credit event despite the participation of Greece's private creditors.

© 2011 AFP

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