Focus Turns to ECB Greece Policy

Wall Street Journal
February 7, 2012

The European Central Bank is widely expected to keep its interest rates on hold Thursday, but clues as to how it will deal with the intensifying crisis in Greece are likely to steal the show.

While negotiations between Greece and its private creditors on a €100 billion (€131.31 billion) debt write-down seem close to completion, all Greek political parties still must pledge their commitment to new austerity measures in order to secure a €130 billion loan from its European partners and the International Monetary Fund. Pressure has also grown in recent weeks to include the public, or official, sector in the debt write-down. The Greek situation, if unresolved, threatens to undercut encouraging signs of recovery both inside and outside the euro zone.

Involvement of the official sector would help close a €15 billion gap between the €130 billion second bailout package that Greece is due to receive and the €145 billion in aid that it seems to need.

Thus far, voices from the central bank clearly reject the notion that the ECB should also take a hit on its holdings of Greek government bonds. ECB Governing Council member Ewald Nowotny said last week "that the current negotiation has to do with an involvement of the private sector," which does not include the central bank.

More