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Eurozone open to Greek selective default: minister

Published on 12/07/2011

Eurozone finance ministers are open to the possibility of allowing a selective debt default in Greece within a new rescue plan for the country, the Dutch finance minister said Tuesday.

“It’s not excluded anymore, clearly,” Jan Kees de Jager said on arriving for talks with European Union counterparts, one day after eurozone ministers issued a statement vowing to ensure the stability of the single currency area.

Eurozone ministers are scrambling to put together a new bailout for Greece that would involve the private sector, but they have been divided over whether they should exclude or allow the possibility of a partial default.

“We have managed to break the knot, a very difficult knot of a contradictory statement on the one hand… saying that you want substantial private sector involvement and on the other hand you have at all times to avoid a selective default,” De Jager said.

“Obviously this was a contradiction, so we have broken that knot and now we can do the work,” he said.

The position taken by eurozone ministers late Monday, he said, gives a “broader mandate” and “several options” to a working group that was tasked with coming up with proposals for the new bailout.

The European Central Bank, however, has reaffirmed its opposition to a “credit event” or selective default in Greece.

“Obviously the ECB has stated in the statement that it remained in its position but the 17 ministers did not exclude that anymore so we have more options, broader scope to work with,” De Jager said.

Germany, the Netherlands and Finland have insisted on private sector involvement in the new bailout, which is expected to come close to last year’s 110-billion-euro rescue, even if it means a selective default.

After marathon talks Monday, eurozone ministers issued a statement saying they “recognised the need for a broader and more forward-looking policy response to assist the (Greek) government in its efforts to bolster debt sustainability and thereby safeguard financial stability in the euro area.”

They said the working group will “explore the modalities for financing a new multi-annual adjustment programme, steps to reduce the cost of debt-servicing and means to improve the sustainability of Greek public debt.”

Amid fears of Greek debt contagion to Italy and Spain, Luxembourg Finance Minister Luc Frieden said eurozone nations must “stand together” to prevent one country’s troubles from spilling over to others.

“We will do everything to prevent any risk of contagion or default of a eurozone member state, so nobody will leave the eurozone,” Frieden said.

“We live in a world and a Europe which is extremely interdependent. So let us not think that the problem of one country is just the problem of that country, it’s a problem for all of us,” he said.