Comments on: The ECB starts getting helpful with Greece

By: scythe

scythe — Wed, 08 Feb 2012 21:00:09 +0000

(quote) Athens and the commercial banks are urging the European Central Bank to forego profits on its Greek bond holdings to help cut the debt to a sustainable level. (http://www.reuters.com/article/2012/02/ 08/us-greece-idUSTRE8120HI20120208)

thought so, the wsj article was a piece of murdoch-inspired bullsh*t
trying to prime the gun for Athens

By: k9quaint

k9quaint — Wed, 08 Feb 2012 16:34:31 +0000

As long as Greece has a large structural deficit and cannot tap the markets, the ECB & EFSF have leverage. Loaning the money to Greece to buy back and retire bonds at a very large discount is a painless way to reduce their overall burden. If Greece goes bust, the ECB & co are going to be bailing out the banks to a similar extent. Since in this case Greece already owes the money to the ECB, it makes perfect sense to exchange the bonds. Plus, it removes the ECB from the restructuring negotiations (which is good because they have all very strict rules about what they can and cannot do and what is needed is probably going to have to be flexible).

By: dwb3

dwb3 — Wed, 08 Feb 2012 14:39:38 +0000

a bailout fund (EFSF) should not expect “future profits” from lending. If European political institutions cannot grasp and embrace the concept of mark to market (and instead extend and pretend the lossees are “covered” by “future profits”), then what hope is there for the banks they regulate?

By: sp333

sp333 — Wed, 08 Feb 2012 13:26:32 +0000

the efsf would just exchange the greek bonds for newly issued EFSF bonds. then the EFSF participates in the PSI taking the loss, but the loss is only realised gradually over time as it repays its bonds to the ECB. The loss is covered by future profits from its lending activities or if needed by drawing down on its guarantees.

By: dwb13

dwb13 — Wed, 08 Feb 2012 12:57:03 +0000

who capitalizes the EFSF? Greece is not saving 11 bn, they its costing them $14 because they would have to write them down at least 50% with a lower coupon. Europe is a mess, a political freak show.

By: alea

alea — Wed, 08 Feb 2012 11:31:09 +0000

Also, it’s not a “new €39 billion debt”, it’s €39 billion instead €50 billion owed.

By: alea

alea — Wed, 08 Feb 2012 11:28:47 +0000

” but a big new EFSF debt might well be some kind of senior, bilateral obligation which effectively subordinates the new bonds that Greece is going to issue in a bond exchange.”
The EFSF specifically does NOT have preferred creditor status.

By: breezinthru

breezinthru — Wed, 08 Feb 2012 09:12:38 +0000

The arithmetic is simple in a perverse sort of way. Only a banker could come up with such utter nonsense and still be expected to be taken seriously.

I guess I have failed to meet expectations, once again.

By: scythe

scythe — Wed, 08 Feb 2012 07:18:40 +0000

(quote) ECB spokesperson declined to comment.

this is a wall street journal think-piece on public sector involvement, complete with fictitious ‘spokespeople’

not worth the analysis

as chancellor merkel said, they won’t force greece to leave the eurozone

but they are not going to help it stay in ….

By: realist50

realist50 — Wed, 08 Feb 2012 06:28:40 +0000

I agree that this move sounds like a mess, though I don’t see how Greece’s new debt to the EFSF being senior to other debt will be a meaningful change. The ECB’s bonds are being treated better than private creditors in this deal, and it’s been stated for some time that the ECB would be treated better. The bonds held by the ECB were already de facto senior to others, despite the fact that they should have the same legal status. I suspect, by the way, that this treatment of the ECB will have negative unintended consequences down the road with debt of some other sovereign.

By: johnhhaskell

johnhhaskell — Wed, 08 Feb 2012 03:20:06 +0000

So holders of the bonds will take a 70% haircut, unless the bondholder really doesn’t want to, in which case it will give the bonds to the EFSF at cost. Yes that is definitely a step forward, if our goal is a big fat Greek default, followed by Portugal a few weeks later.

By: ottorock

ottorock — Wed, 08 Feb 2012 01:33:43 +0000

Reminds me a lot of the ‘bad bank’ system, just much bigger and affecting more lives. Probably positive for those outside this snafu looking in, though.

By: Foppe

Foppe — Tue, 07 Feb 2012 23:48:30 +0000

London Banker has a slightly different take on the same news: http://londonbanker.blogspot.com/2012/02 /greece-cutting-out-middle-man.html :
“The fear among the creditor states of the eurozone was that irresponsible Greek politicians might use any new money to pay civil servants and pensioners rather than bankers and hedge funds. With funds held in escrow and disbursed by a non-Greek overseer, they needn’t worry about such excesses of sovereign generosity.

This plan amounts to cutting out the middle man – the debtor. Bailout funds are used to bail out Greek creditors, without ever passing through Greek hands.”