ECB Likely to Wait for Debt Deal on Greece

Pressure hasn't forced central bank to reveal strategy

Any concessions the European Central Bank may choose to make on Greece’s sovereign debt are likely to remain unknown until Athens comes to some sort of agreement with its private debt holders. Although pressure has been increasing on the bank to reveal its strategy regarding the Greek debt it holds, thus far the institution has remained mum.

Bloomberg reported Thursday that economists believe it is likely to continue its silence until Greece successfully cuts some sort of deal with its private creditors–banks and investors–and then will reveal whether it will forgo profits from its Greek bonds or transfer them to one of the region’s rescue funds.

Greece must secure some sort of agreement before March 20, when it must make a 14.5 billion euro ($19.1 billion) bond payment. Charles Dallara, who as managing director of the Institute of International Finance (has been leading a group of private creditors in their negotiations with Greek officials, has been pushing for public institutions to become involved, since private creditors hold only 60% of Greece’s debt. Thus far, however, those institutions have resisted.

Carsten Brzeski, senior economist at ING in Brussels, was quoted saying, “Politicians will bang their heads against the wall trying to get the ECB to be involved at this stage. The ECB will stay out of this as long as it can. While they won’t take a haircut, not booking profits would be a realistic option.”

At private meetings in Brussels earlier in the week, ECB President Mario Draghi dismissed the notion of transferring back profits from bond holdings to the Greek government. In January he had also said that the ECB was “not party” to talks between private investors and the Greek government.

Silvio Peruzzo, euro area economist at Royal Bank of Scotland Group in London, was quoted saying, “The ECB remains against an involvement simply because monetary and fiscal policy would cross paths. Participating would severely undermine the role of the ECB in crisis management.”

However, all are not so sure that action is not already taking place behind the scenes. Michael Schubert, an economist at Commerzbank in Frankfurt, Germany, was quoted commenting, “It’s possible that the ECB is already working on a compromise behind closed doors. It’s a dangerous game.”

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