German Chancellor Angela Merkel has said that the euro zone summit on a second Greek rescue scheduled for Thursday will not produce a 'spectacular' knock-out blow to the bloc's sovereign debt crisis. 'If you want to act responsibly, you know that such a spectacular step will not happen, including on Thursday,' Merkel told a news conference after talks in Hanover, northern Germany with Russian president Dmitry Medvedev. Merkel said the summit would not be the final step in the resolution of Greece's debt crisis.
'There are other necessary steps to take and not one spectacular result that will solve all problems,' she said.
Meanwhile, Austria's central bank governor has said that a solution to Greece's debt crisis could involve a 'selective default' without major consequences, the first sign of a crack in the European Central Bank's hard line on the issue.
The ECB has proved a major stumbling block to agreeing a second rescue plan for Greece as it has threatened to refuse to accept restructured Greek bonds as collateral in its lending operations in the event of a default or a selective default. Ewald Nowotny, head of Austria's national central bank, said a full default would have 'grave consequences' for Greece and the ECB's ability to accept its debt as collateral. But he indicated that selective default might work.
'There is a full range of options and definitions - from a clear-cut default to selective default, to a credit event and so on,' he told CNBC in an interview broadcast today.
'This indeed has to be studied in a very serious way. There are some proposals that deal with a very short-lived selective default situation that would not really have major negative consequences,' he added.
Nowotny's remarks differ starkly from the stance taken by ECB President Jean-Claude Trichet, who told a news conference after the ECB's monetary policy meeting earlier this month: 'We say no to selective default, no to a credit event.' Trichet repeated that view in a separate newspaper interview published today.
European leaders hold a summit on the euro zone crisis on Thursday, and any sign the ECB could be open to a compromise on the collateral it accepts at its funding operations would increase the chances of a deal for Greece.
The ECB demands that banks put up adequate collateral to receive funds at its regular refinancing operations.
The ECB's insistence that it would not accept collateral that is in default is aimed at making sure euro zone governments - with or without the private sector - assume the cost of dealing with the crisis, rather than pushing it over to the ECB, which fears its independence being compromised.
Ratings agencies have said that proposals to roll over Greek bonds into longer maturities would be a default and banking and government officials have struggled to find an alternative.
Nowotny stressed it was ultimately up to the ECB - not ratings agencies - to decide what it could accept as collateral.
'At the end of the day, it has to be the decision of the ECB,' he said. 'The ECB should not be totally dependent on rating agencies. It is at the end of the day our own responsibility, our own decision,' he stated.
Meanwhile, Greece has raised €1.625 billion in three-month debt at an easier yield rate of 4.58% compared to the 4.62% rate offered on the same amount in June, Greece's debt management agency has said. Bids at the three-month treasury bill auction totalled three times the offer, with a total demand of €3.845 billion for an initial offer of €1.25 billion, the agency said, giving the final amount raised of €1.625 billion.