ECB under pressure to take haircut

[Owlet]

"It appears that over the past day or so, the ECB has come under pressure to participate in Greece’s PSI (Private Sector Involvement - ed) . Reports that the IMF were pushing for this has quickly been denied. The ECB has also formally rejected participating. Nevertheless, Dallara, representing private sector creditors, is insisting that all creditors, private and public, share in the adjustment.

We have written about the thorny issues raised by the ECB’s bond purchases, leaving aside the objections that led to the resignation of both Weber and Stark. The more the ECB buys, while refusing a haircut, the greater the haircut on the private sector is required to voluntarily take to reduce Greece’s overall debt burden to what the IMF says is sustainable, which appears to be 120% in 2020."

The ECB reportedly has purchased between €40 and 60bn at something like a 25% discount. The ECB, like the Fed, has loaded up its balance sheet with toxic assets. The ECB insists that its purchase of Greek debt was for monetary purposes, not as an investment. Really.

http://www.creditwritedowns.com/2012/01/will-the-ecb-take-a-haircut.html

[Yo_Mama]

1. They really have to

There isn't enough of the debt left in the private sector to take the Greeks to a manageable debt load without a total write down, and if that is forced, then the only possible funding for the Greeks with be through the IMF and the ECB, so the refusal is self-defeating.

In fact, when the ECB/IMF debt was excluded last fall, it caused the implosion of the Italian/Portuguese/Spanish debts. So then they had to announce that the Greek thing would be unique. Well, why? Why should it be unique?

The Greeks need to have about a 50% writedown of total debt to get a chance at coming out of their death spiral. They're not going to get it, so the remaining assets in private hands after this deal with be almost totally fictional. Unless the ECB writes its debt down too, the Greeks will have to go off the currency and the ECB will take a hit anyway, so this is pure nonsense.