July 22, 2011
The European Central Bank and Jean-Claude Trichet, its president, got a lot of what they wanted from the summit – although the veteran French banker had to step across what one analyst called a “line in the sand” in abandoning his fierce opposition to any kind of Greek default.
Mr Trichet’s ultimate acceptance of private sector involvement in the rescue – leading inevitably to declarations of default by rating agencies – came only after European leaders agreed to put in place €35bn of collateral necessary for Greek banks to continue to present any defaulted bonds to the ECB in return for liquidity.
That was one of Mr Trichet’s key demands in the days before the summit, and a move he saw as indispensable if the bank were to be able to claim it was acting in the interests of financial stability.
But some elements of the deal attracted warnings from other influential voices at the ECB, with Jens Weidmann, president of the Bundesbank, saying the eurozone had shifted “substantial additional risks” to contributing countries and their taxpayers.
Mr Weidmann said on Friday that the eurozone had taken “a big step toward collectivisation of risks... In the future, it will get harder to maintain incentives for sound fiscal policies.”