The FT has reported that the IMF has been putting pressure on the ECB to take a loss on its holdings of Greek debt it has built up under the SMP along with the private sector. The estimate amount is around E40bn at purchase value. The IMF now believes that the E130bn bailout put together in October last year will be inadequate to put Greece on a steady path. The IIF yesterday also commented stating that “all parties” should honor their commitments, a disguised call for the ECB to also take a loss on Greek paper. When commenting on this the ECB have always resisted this and have warned against an uncontrolled default. The FT also reports that the ECB have discussed fallback options such as forgoing the profits it expects on the bonds or for national central banks in the euro zone to take losses.
I would argue that the ECB still has strong arguments to resist pressures:
- It has effectively acted as buyer of last resort to the private sector
- I reckon the majority of Greek bonds is actually held with national central banks, so a write-down by the ECB would provide only limited solace
-If the ECB take a hit then it would put further pressures on stronger countries to contribute
- I would expect any impairment losses to be shared by the Euro system at large may put pressure on national central banks to re-capitalize
- A messy default raises the risk that investors turn their attention to the countries deemed next in line (contagion); ensuing capital
Guru’s thought: If I was at the ECB I would tell them all to piss off and shut up! From the start the ECB have said that no mater what happens they will get their money back in full. Fuck the banks and funds! If they were too short sighted to see that Greece is full of lazy knobs who dont like working or paying tax, then why would you lend them money??
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