ECB under pressure over Greek bond hit

Financial Times
January 24, 2012

The International Monetary Fund has turned up pressure on European officials to take on more of the burden of filling a widening gap in Greece’s budget by pressing the European Central Bank to take a hit on its €40bn in Greek bond holdings, eurozone officials said.

The ECB bought the bonds at below face value as part of a programme to prevent the collapse of Greek debt markets in 2010. It has also been accepting Greek bonds as collateral for cheap loans to teetering Greek banks. The bonds, with estimated yields in excess of 7 per cent, will provide a big return if Greece does not default and they are held to maturity.

An IMF official denied the fund was pressing the ECB to take writedowns on the bonds. But eurozone officials involved in the discussions said the pressure to earmark potential gains to fill Greece’s financing hole was being fiercely resisted by the ECB.

Private investors have begun to chafe at the ECB’s insistence its bonds be paid in full while the private bondholders are being urged to agree to a cut of at least 50 per cent on the face value of their holdings. At a press conference on Tuesday, Charles Dallara, the lead negotiator for a consortium of banks and insurance companies, called on “all parties to honour those commitments”, including the ECB.

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