ECB may take losses in Greek debt restruc­tur­ing

The Pak Banker - - FRONT PAGE -

Euro­pean pol­i­cy­mak­ers are work­ing on "last chance" op­tions to bring Greece's debts down and keep it in the euro zone, with the ECB and na­tional cen­tral banks look­ing at tak­ing sig­nif­i­cant losses on the value of their bond hold­ings, of­fi­cials said.

Pri­vate cred­i­tors have al­ready suf­fered big write downs on their Greek bonds un­der a sec­ond bailout for Athens sealed in Fe­bru­ary, but this was not enough to put the coun­try back on the path to sol­vency and a fur­ther restruc­tur­ing is on the cards. The latest aim is to re­duce Greece's debts by a fur­ther 70-100 bil­lion eu­ros, sev­eral se­nior euro zone of­fi­cials fa­mil­iar with the dis­cus­sions said, cut­ting its debts to a more man­age­able 100 per­cent of an­nual eco­nomic out­put.

This would re­quire the Euro­pean Cen­tral Bank and na­tional cen­tral banks to take losses on their hold­ings of Greek gov­ern­ment bonds, and could also in­volve na­tional gov­ern­ments also ac­cept­ing losses.

The fa­vored op­tion is for the ECB and na­tional cen­tral banks to carry the cost, but that could mean that some banks and the ECB it­self hav­ing to be re­cap­i­tal­ized, the of­fi­cials said. The ECB de­clined com­ment.Plan­ning is in the early stages and no for­mal dis­cus­sions have yet taken place. But there is an aware­ness that Greece is way off-track in im­prov­ing its fi­nances and that ag­gres­sive ac­tion is needed to keep the coun­try in­side the euro zone.

Of­fi­cials de­scribed a fur­ther restruc­tur­ing of Greek debt as a last chance to re­store the coun­try to sol­vency, with the agreed goal of cut­ting its debt to 120 per­cent of GDP by 2020 al­ready seen as far be­yond reach.

The In­ter­na­tional Mon­e­tary Fund, a party to the two res­cue pack­ages Greece has so far re­ceived, is in fa­vor of over­haul­ing Athens's of­fi­cial-sec­tor loans - a process pol­i­cy­mak­ers re­fer to as "OSI" or of­fi­cial-sec­tor in­volve­ment.

"If I were to as­sign a per­cent­age chance to OSI in Greece hap­pen­ing, I would say 70 per­cent," one euro zone of­fi­cial in­volved in the de­lib­er­a­tions said.

One of the op­tions be­ing worked on would in­volve the ECB and na­tional cen­tral banks in the Eurosys­tem writ­ing down the value of the Greek gov­ern­ment bonds they hold by 30 per­cent, un­der a process that bankers re­fer to as a "hair­cut". To­tal out­stand­ing of­fi­cial-sec­tor cred­its to Greece, which also in­cludes bi­lat­eral loans ex­tended to Greece by euro zone gov­ern­ments, is about 220-230 bil­lion eu­ros.

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