The deal is all but done but we still have no formal announcement that the ECB has exchanged its Greek bonds for new bonds that will be exempt from legal steps by Athens to force losses, as reported already.
The hold-up is, perhaps, over the issue of what to do about those Greek bonds held by eurozone national central banks in investment portfolios but not acquired under the ECB’s bond buying programme launched by Jean-Claude Trichet, then president, in May 2010. We don’t have any figures on how big these holdings are, or where exactly they are — although the biggest are thought to be held by the central banks of France, Cyprus and, of course, Greece. The Bundesbank has none.
The argument for also excluding these bonds from collective action clauses, which Athens is expected to insert to force losses on private sector investors, is that the central banks concerned could have sold them but did not as that would have undermined the ECB’s bond buying programme. As such, the central banks could also argue they were also held for “monetary policy purposes” — the grounds on which the ECB is saying its purchases should be exempt.
Another argument is that if losses were imposed on the investment portfolio holdings, then some central banks concerned might have to be re-capitalised by their governments. The cost of doing so could exceed the benefits accruing to the Greek government.
On the other hand, if eurozone central banks are given special treatment, what are Europe’s leaders meant to say to other central banks around the world, which also have Greek bond holdings? Why should, say, China’s central bank take a haircut, when France does not?