European Central Bank bows to reality over Greek bonds

by Stephanie Flanders

BBC News
February 8, 2012

It seems the European Central Bank has bowed to the reality that it could not expect to make a profit on the Greek bonds it has been buying at knock-down prices, while private sector bondholders were being asked to take such a big hit.

The complicated arrangement for involving the ECB in the deal to cut the stock of Greek sovereign debt, now sketched out by the Wall Street Journal, is slightly different from the variants I discussed the other week.

However, the basic principle is the same. As I predicted, the European Financial Stability Facility is going to be the middle man in a transaction that will involve no formal loss for the ECB - and, crucially, no formal write-down of any of its holdings - but could leave the Greeks up to 11bn euros (£9.2bn; $14.6bn) better off.

More