ECB bond tactics could assist Greece

Following the European Central Bank?s decision to swap the Greek bonds it holds with new ones, the markets are now shifting their attention to how Frankfurt will be involved in the restructuring of Greek debt.

Kathimerini understands that the most likely scenario is for bonds held by national central banks in the eurozone (totaling some 10 billion euros) — acquired before the eruption of the financial crisis — to suffer the same haircut that privately held bonds are to undergo in the context of the private sector involvement plan (PSI).

In contrast, there will be no haircut to the bonds acquired by the European Central Bank in the context of lending support to the Greek bond market during the crisis, amounting to about 45 billion euros.

The aim of the swap of existing ECB-held bonds with new ones is to avoid their inclusion in the compulsory haircut imposed by the likely use of collective action clauses (CACs) in the process, as the new bonds will have new International Securities Identification Numbers (ISIN), which the CACs to be imposed will not concern.

There will also be another side-benefit for the ECB from such a swap in that it will reap a profit from the new bonds, as the existing bonds were bought at a lower price than their nominal value. However, the new bonds will have the same price as the nominal value of the old ones; as a result all eyes will be on whether these profits will be used to the benefit of Greece.

At any rate, the ECB will have to distribute the benefits from the swap to the national central banks. It will then be the member-state governments? decision whether they will spend the profits on Greece or not.

Sources suggest that the Public Debt Management Agency (PDMA), in cooperation with banks and the Athens Exchange, have created a platform for the interconnection of all repositories in the world ahead of the PSI. This platform will allow the Greek state to be updated on a daily basis about the percentage rate of involvement in the haircut.

Meanwhile, local banks are worried about a possible change in the PSI terms meant to achieve the target of reducing Greece?s debt to 120 percent of its gross domestic product by 2020.