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Time for ECB to write down value of its Greek debt

Analysts estimate the ECB may be holding as much as €50-billion or €55-billion worth of Greek government debt.


The word out of Brussels is that plans are afoot to have the European Central Bank swallow hefty losses on its Greek debt holdings. It's about time.

It doesn't make sense for by far the largest of Greece's creditors to avoid the haircuts being foisted on private-sector institutions, which hold only about 60 per cent of the paper. But the ECB, and other central banks in Europe stuck with Greek paper would love to preserve the fiction that their Greek junk bonds are still worth 100 cents on the euro. It means the ECB doesn't have to write down billions of euros worth of collateral for loans to keep the Greek bank system from collapsing or take a huge hit to its balance sheet.

But euro-crisis watchers say the ECB has no intention of doing any restructuring of its own until a deal is in place between Athens and the private-sector bondholders. And as we know, the time is running short. The Greeks need the deal before the troika -- the European Commission, the ECB and the IMF -- unlock the vault and hand over the next rescue cash. Without the infusion, the broke government has no hope of coming up with €14.5-billion to cover bond interest costs and redemptions due March 20.

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So here we have the European Central Bank sitting on the rescue money and forcing a restructuring deal that it would rather not be part of. Meanwhile, it has acquired a significant chunk of its Greek debt for far less than face value.

Analysts estimate the ECB may be holding as much as €50-billion or €55-billion worth of Greek government debt. Prices have fallen below 25 cents for Greek 10-years. When the ECB first plunged into the secondary market to shore up their value, the bonds were changing hands at 84 cents on the euro.

ING Groep CEO Jan Hommen says it's only logical for the ECB to be part of the restructuring."I'm not saying they should take a loss. But they have a potential gain on their position which they bought at a discount," he told reporters.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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