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The unwillingness of the European Central Bank to participate in March’s Greek debt restructuring was a point of contention for private bondholders that took billions in losses. Many believe that Greece now needs a second bailout to remain solvent, and senior Eurozone officials told Reuters that the Eurozone’s central banks are reconsidering.
Writedowns on at least some of the €220-230 billion ($271-283 billion) of Greek debt held by the ECB, national central banks, and other official creditors would bring Greece’s debt down to a more manageable level.
Reuters cites a 30 per cent haircut, which would reduce Greek debt by around 70 billion euros, as the most likely option. However, this could require recapitalization to shore up the balance sheets of the highly exposed Cypriot, French and Maltese central banks, and possibly even the ECB.
This is a huge change in policy for the ECB that will have a concrete effect on the crisis, and it certainly gives credence to Mario Draghi’s statement yesterday. Had the European leaders and the ECB agreed to this back in February, it might have saved some drama. Either way, this seems like the sort of action that’s needed to restore investor confidence in Greece’s ability to pay off its debts.
Read the full report at Reuters >
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