The European Central Bank’s profits from Greek bonds could be used to help restructure Greece’s debt, Executive Board member Benoit Coeure said, spelling out how the ECB’s funds could play a role in Athens’s debt deal.
ECB President Mario Draghi sketched out the plans last week, but Coeure’s comments are the clearest signal so far of what the Frankfurt-based central bank has in mind.
The ECB has been under increasing political pressure to play a more direct role in helping stabilize Greece’s finances but internal divisions and European rules preventing it from handing money to national governments, have left it with limited leeway.
However, profits made by the ECB are always distributed to the national central banks of the 17 countries that use the euro and they could choose, with national governments, to use the funds to help Greece.
“Should there be a profit (on Greek bonds), like all monetary revenues, it is to be distributed to the (member) states,» Coeure, one of the ECB’s top policymakers, said in an interview with French daily Liberation published on Tuesday.
“They could use it to contribute to the sustainability of Greek debt,» added Coeure, a member of the influential six-man Board, whose members usually reflect the ECB’s house view.
According to eurozone sources, the bank owns roughly 50 billion euros worth of Greek bonds as a result of a controversial emergency support program started in May 2010.
It bought the bonds at a discount, however, paying just under 40 billion euros. It means it is sitting on a paper profit of 10-15 billion euros, money which could be directed back to Greece fairly easily.
The process of sending the ECB profits back to Athens would likely be fairly smooth unless Greece’s deal with its private creditors falls apart at the last moment and Athens needed to force losses upon them.
That would put the ECB in the tricky position. It is the largest single holder of Greek debt and not joining the debt cut deal with private banks would create the impression it receives preferential treatment over normal bond market investors.
On the flip side taking losses would risk being seen as breaking the ECB’s ultimate taboo of financing governments.
“The Eurosystem has built up a portfolio of Greek bonds since May 2010 in order to restore the good functioning of the capital markets in Greece and so that monetary policy is correctly transmitted to the Greek economy,» Coeure added.
“It’s not an investment portfolio but a portfolio constituted within the monetary policy framework. For this reason, it’s out of the question that it is used within the parameters of the private sector.» [Reuters]