Ratings agencies playing hardball on Greece: Nowotny

VIENNA Mon Jul 4, 2011 6:27pm EDT

Ewald Nowotny, Governor of Austrian National Bank (OeNB), attends a news conference in Vienna June 14, 2011. REUTERS/Herwig Prammer

Ewald Nowotny, Governor of Austrian National Bank (OeNB), attends a news conference in Vienna June 14, 2011.

Credit: Reuters/Herwig Prammer

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VIENNA (Reuters) - Debt rating agencies are being much tougher on potential private-sector contributions to Greece's debt woes than in past bailouts, European Central Bank Governing Council member Ewald Nowotny said on Monday.

He reiterated in an interview with Austrian television that a Greek default had to be avoided and at least some banks holding Greek sovereign debt were ready to help stabilize the situation, but said ratings agencies were making that harder.

"We are conducting a very difficult conversation with the ratings agencies," he said.

"This is what we have to try to find: a way that on the one hand certainly involves banks without having this lead to a default as a consequence," he added.

"I also must say it strikes me that the ratings agencies are being much stricter and more aggressive in this European matter than they were, for example, in similar cases in South America. I think this is something we will have to think over."

He was apparently referring to "Brady bond" bailouts used in Latin America in which banks used a similar approach -- exchanging sovereign debt for new paper guaranteed by healthier countries.

He spoke after ratings agency Standard & Poor's cast new uncertainty over euro zone efforts to rescue debt-crippled Greece by warning it would treat a French bank plan for a rollover of privately-held debt as a default.

Nowotny dismissed as "utter nonsense" the idea floated by some economists that Germany, Austria and other countries with robust exports should quit the euro zone.

He also said these countries benefited most from a functioning common market and that their terms of trade would worsen significantly if the euro zone were to break up.

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