private sector involvement

Ralph Atkins

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. Read more

Ralph Atkins

The European Central Bank’s governing council has a lot to discuss at Thursday’s meeting. Interest rates may not attract the most attention: the ECB’s main rate is widely expected to remain at 1 per cent.

Since January’s council meeting, the “tentative signs of stabilisation in activity at low levels” spotted by Mario Draghi, president, have been confirmed in economic indicators, especially eurozone purchasing managers’ indices. The latest bank lending data and survey of credit standards were very weak – but perhaps no weaker than expected. Crucially, it was too early for the impact of the €489bn of three year loans injected into the eurozone financial system by the ECB in December to have been felt.

Moreover, there seems little reason for the ECB to adjust interest rates ahead of a second three year longer-term refinancing operation (Ltro) on February 29. Instead, attention at Mr Draghi’s press conference is likely to focus on two issues: Greece, and the latest relaxation of ECB collateral rules.  Read more

Ralph Atkins

As Greece’s largest bond holder, with a portfolio worth perhaps €40bn, the European Central Bank is watching closely the tense and protracted negotiations over losses private investors would accept voluntarily as part of a second refinancing deal for the country. Mario Draghi, ECB president, will discuss progress when eurozone finance ministers gather tonight (Monday) in Brussels.

The ECB has two objectives: first, to secure a deal that has a reasonable chance of working and, second, to avoid bearing any burden itself. Neither will be easy. Read more