ECB Said to Consider Ways to Use Its Bond Holdings to Bolster Greek Rescue

Bloomberg
February 4, 2012

The European Central Bank is considering using its bond holdings to bolster Greece’s next rescue program and support efforts to contain the sovereign debt crisis, three euro-region officials said.

Under one plan, the ECB could sell its Greek bonds to the European Financial Stability Facility at the price it paid for them rather than accept a loss along with private creditors, two of the people said. The EFSF is against that proposal because it may stretch its capacity, the officials said. Another plan is for euro-area central banks to give up profits or take losses on Greek bonds in their investment portfolios. Several options are under informal consideration and none have gained traction so far, two of the officials said. Spokespeople for the ECB and the EFSF declined to comment.

The central bank’s discussions have taken place as Greece, its private creditors and international authorities struggle to assemble a new aid package big enough to contain the crisis. The European Union is under pressure to reach a deal with Greece and its creditors soon because of a 14.5 billion-euro ($19 billion) Greek bond payment due March 20.

In October, the EU, Greece and private creditors agreed to a deal that includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and 130 billion euros in official loans. That deal, which also involves the International Monetary Fund, requires Greece’s debt burden to fall to 120 percent of gross domestic product by 2020.

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