by Ralph Atkins
Financial Times
January 23, 2012
As Greece’s largest bond holder, with a portfolio worth perhaps €40bn, the European Central Bank is watching closely the tense and protracted negotiations over losses private investors would accept voluntarily as part of a second refinancing deal for the country. Mario Draghi, ECB president, will discuss progress when eurozone finance ministers gather tonight (Monday) in Brussels.
The ECB has two objectives: first, to secure a deal that has a reasonable chance of working and, second, to avoid bearing any burden itself. Neither will be easy.
Earlier this month, Vítor Constâncio, vice president, set out the ECB governing council’s starting position. “PSI, by definition, is private sector involvement so we are not involved in those negotiations,” he said bluntly at a press conference after its regular monthly meeting.
The ECB argues that accepting losses, or a “haircut”, on its own holdings would amount to the central bank subsidising the Greek public purse – and thus violate the European Union treaty ban on “monetary financing”. The same logic would also rule out individual eurozone central banks from accepting losses on Greek bonds held in their own individual portfolios, rather than as a result of ECB operations.
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