European markets steadied today after a late rally sparked by hopes of action from European authorities to help struggling banks and ease the debt crisis. Shares had again fallen earlier as talk of a possible Greek default gained pace. Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying an orderly default with a 50% haircut for bondholders was one of three possible scenarios for resolving the heavily indebted euro zone nation's fiscal woes. Venizelos described the reports in a statement as an unhelpful distraction from the central task of sticking to Greece's EU/IMF bailout programme. European Central Bank governing council member Klaas Knot told a Dutch daily a Greek default could no longer be ruled out, the first ECB policymaker to speak openly of the prospect.
''It is one of the scenarios. I'm not saying that Greece will not go bankrupt," Dutch daily Het Financieele Dagblad quoted him as saying. "All efforts are aimed at preventing this, but I am now less certain in excluding a bankruptcy than I was a few months ago," Knot said, adding that he wondered "whether the Greeks realise how serious the situation is".
More signs emerged today that European governments are working on recapitalising vulnerable banks, with France's top market regulator saying 15 to 20 banks needed extra capital, although no French ones "at this stage". The European Commission said European banks had already received €420 billion in funds to help recapitalise since 2008 and were in much better shape than three years ago.
"The recapitalisation of European banks is something that is ongoing, it is something that is already happening," Commission spokesman Olivier Bailly told a regular briefing. Greek newspaper Ta Nea said Venizelos had told Socialist politicians behind closed doors that the government's central scenario was to stick to austerity plans to receive a second €109 billion bail-out and avoid bankruptcy. The alternatives were either an agreed restructuring of Greek debt with a 50% reduction in the face value of government bonds, or a disorderly default, he said. Greek bank shares fell by 5% on the reports, prompting Venizelos to say in a statement: "All other discussions, rumours, comments, scenarios which are diverting our attention from this central target and Greece's political obligation do not help our common European task." The European Union's top economic official, Olli Rehn, said in a speech in Washington that the EU was doing everything to avoid an uncontrolled default. He did not explicitly rule out an orderly restructuring of Greek debt, which many economists see as inevitable