Officials in Paris, at the European Central Bank and the European Commission are pushing to avoid a so-called credit event under any attempt to reduce Greece’s debt burden, fearing that it would trigger insurance policies against a Greek default and spread panic through the financial system.
In order to avoid a credit event, any writedown of Greek debt would have to be done with the cooperation of bondholders. Investors involved in the talks said it would be impossible to get a voluntary deal with “haircuts” as big as 50 per cent, a level pushed by some in Berlin.
German officials have been divided on how far to go. The majority view in Berlin, European officials said, was to avoid a credit event but some hardliners have pushed for a default, fearing that a deal with banks would put eurozone governments on the hook if a default were to occur later.
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