By TraderVox.com
Tradervox.com (Dublin) – According to three euro area officials who asked for anonymity, the European Central Bank is considering new measures to help Greece reduce its funding gap through the use of Greek debt in its investment portfolios. The ECB has Greek bonds in its investment portfolios and had agreed in February to give any profits back to Greece. This issue has been revisited, with ECB suggesting options including rolling over the holdings or allowing the Greek Government to buy them back.
According to one of the officials, the ECB has over 10 billion euros in the portfolios. But the amount saved by Greece would be considerable less than the overall value of the holdings. The euro zone finance ministers were meeting in Brussels yesterday where they agreed to help Greece by allowing the bailout money. The impasse had prevented the next bailout from being paid to the country despite Greek parliament passing austerity measures. Greece requires as much as 32.6 billion euros in extra financing through 2016. According to creditors’ assessment of the Greek issue, allowing Greece two more years would open up financing gaps of 15 billion euros through 2014 and 17.6 billion euros in 2015-2016.
The considerations of debt rollovers or buybacks would lead to controversy as they would open the ECB to accusations of monetary state financing. Bundesbank, Germany’s central bank, has already voiced its opposition to such a move by the region’s central bank, opposing the current bond-buying program as it poses dangers to the banks credibility and independence. Economists who have talked about the issue have indicated that the rollover would give remedy to the immediate Greece funding requirements, while a buyback would force the government to pay ECB the amount it paid for the bonds, which is less than the face value.
If the Greek government is able to close the funding gap to meet the terms of its bailout, it would receive the next tranche of funds which would allow the ECB to accept Greek government bonds as collateral.
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