ECB faces dilemma on Greek debt rollover

Financial Times
June 28, 2011

Greek banks’ potentially crucial contribution to a voluntary debt rollover as part of a fresh bail-out plan for the crisis-hit country could be held back by European Central Bank restrictions on their activities.

Greece’s commercial banks hold €25bn ($39bn) in bonds issued by the country’s government that will mature by the end of 2014. But their possible involvement alongside French, German and other international investors in a roll-over to provide fresh funding for Athens is creating a dilemma for the ECB.

The ECB is pushing hard for Greek banks to reduce their dependency on its liquidity for their survival. Exchanging maturing securities for new bonds would slow down that process because it would prevent steps to consolidate their balance sheets and return to borrowing from financial markets.

One banker in Athens said: “How this will be treated is a question yet to be answered,” although he was confident “a reasonable solution would emerge”.

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