What happens if a business or a household defaults? I find it hard to believe that the country favors the president's way in handling the debt raising unless of course these same people depend on the government to take care of them and they do not pay taxes anyway.
German Chancellor Angela Merkel and French President Nicolas Sarkozy crafted a common position on a second Greek bailout in late night talks in Berlin with ECB President Jean-Claude Trichet, who appears to have reversed the bank’s stance.
Minds have been concentrated by the danger that Europe’s debt crisis could engulf the much bigger economies of Spain and Italy. Greece, Portugal and Ireland have already succumbed.
”I expect we will be able to seal a new Greece programme. This is an important signal. And with this programme we want to grasp the problems by their root,” Merkel told reporters on arrival in Brussels.
She gave no details but Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, long vehemently opposed by the ECB, was now a possibility.
”The demand to prevent a selective default has been removed,” he told the Dutch parliament. The chairman of the 17-nation currency area’s finance ministers, Jean-Claude Juncker, also told reporters: ”You can never exclude such a possibility, but everything should be done to avoid it.” According to draft summit conclusions, the maturities on euro zone rescue loans to assisted countries would be extended to 15 years from 7.5 and the interest rate cut to around 3.5 percent from between 4.5 and 5.8 percent now.
The EFSF would be able to lend to states on a precautionary basis instead of waiting till they are shut out of market funding, and to recapitalise banks via loans to governments, even if they are not under an EU/IMF assistance programme.
The EFSF would also be allowed for the first time to intervene in secondary bond markets, depending on ECB input, the draft statement showed.