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Involvement of the European Central Bank in the Greek debt restructuring is now seen as “imperative and is proving a sticking point” of a deal between private holders of Greek bonds and the country’s government, according to a Reuters report citing anonymous sources close to the deal.This follows comments from the International Monetary Fund’s Christine Lagarde last week that the ECB would have to take losses if a deal on the debt swap could not be reached otherwise.
Even so, Robert Passerrella of Dow Jones tweeted that Greek Finance Minister Evangelos Venizelos affirmed that negotiators “are talking about a haircut on the net present value exceeding 70%.” That’s far higher than the 21% haircut creditors expected to take back in July and the 50% haircut negotiated in October.
One EU official told Reuters, “The analysis is being done right now to see what steps the official sector can take in reducing Greece’s debts…The goal is to get the debt-to-GDP down to 120 per cent, but even with PSI it’s still substantially above that, so there needs to be official sector involvement.”
Another banking official allegedly confirmed this as the likely contingency of the deal, saying, “We’re talking about the ‘how’ now.”
Reuters sources say the central bank holds €50 billion ($65.7 billion) in Greek bonds, which it bought for €38 billion ($49.9 billion) in order to push down borrowing costs.
ECB involvement in the plan could mark a watershed in crisis management by EU leaders. On the other hand, it might still not return Greece’s out-of-control GDP to sustainable levels.