IMF pressures ECB to forgo profits on Greek bond holdings

Date: Wednesday 25 Jan 2012

Only one day after negotiations over the debt swap once again failed between Athens and its private bondholders, the Financial Times (FT) reports in a front page piece that the International Monetary Fund (IMF) is putting the pressure on the European Central Bank (ECB) to also take a haircut on its own €40bn worth of Greek bond holdings.

The ECB bought up these sovereign bonds below par value as part of the programme to save Greece from collapse back in 2010 and has also accepted them as collateral as a means of propping up the country’s banks.

According to the paper, these bonds currently carry a yield in excess of 7% and the pressure is on the European monetary authority to forego profits in order to ease Greece’s debt loads.

“An IMF official denied the fund was pressing the ECB to take writedowns on the bonds. But Eurozone officials involved in the talks said pressure to earmark potential gains to fill Greece’s financing hole was fiercely resisted by the ECB,” according to FT.

If Greece was to avoid a default and pay the bonds in full, the ECB would reap a handsome profit, at the same time private creditors are being pressured to take writedowns of 50% on their Greek bond holdings and accept a debt exchange with a new yield of approximately 3.5%.

JM

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