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Friday 19 September 2014

Eurozone central banks may roll over Greek debt holdings

Jan Strupczewski

Published 28/11/2012 | 17:21

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EUROZONE central banks might roll over their Greek debt holdings to cut by €5.6bn the amount governments will have to provide Athens by 2016, according to a document that emerged from this week's euro zone finance minister's meeting.

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Such a move would cut the amount required to just €2bn from €7.6bn, the document showed, which should increase the likelihood that the Greek deal will be accepted by bailout-weary national euro zone parliaments.



A senior euro zone official with knowledge of the issue said that while talks were ongoing, no decisions had yet been taken.



International lenders - euro zone countries, the European Central Bank and the International Monetary Fund - agreed early on Tuesday on a debt reduction plan for Athens that would bring Greek debt to 110pc of GDP in 2022, down from almost 190pc expected for next year.



According to the document, Greece would need to get €1.8bn in extra financing in 2012-2014 and another €5.8bn between 2015 and 2016.



But it said that if the euro zone's 17 national central banks, which together form the Eurosystem, decide to replace the Greek bonds they hold with new Greek paper as the debt matures, it would save Greece the need to redeem €3.7bn in 2012-2014 and €1.9bn in 2015-2016.



It lists the item of "roll-over of ANFA holdings" - a term to describe central banks' investment portfolios - in parenthesis, stating in a footnote that the amounts are tentative and subject to national central banks' approval.



The European Central Bank declined to comment on the issue.



There is no public data on the amount of Greek debt held by individual euro zone central banks.



The senior euro zone official said only 13 of the euro zone's 17 national central banks had Greek bonds in their investment portfolio and that with the exception of France, Spain and Portugal, these were generally small amounts.



Germany's Bundesbank, for instance, did not have any Greek bonds in its investment portfolio.



When the second bailout for Greece was agreed in February, national central banks had agreed at the time to transfer the profits they would have made on their Greek bond investment portfolios to Greece, but not to roll over the holdings.



The transfer of just the ANFA profits would have produced only €1.7bn until 2014, according to the Second Economic Adjustment Programme for Greece from March, published by the European Commission.



HELPING ATHENS



The rollover idea is separate from the issue of the European Central Bank returning profits to Athens from the Greek bond portfolio it has acquired under its Securities Market Programme (SMP).



That will reduce the financing needs of Greece by 4.1 billion euros in 2012-2014 and another 3 billion in 2015-2016.



This assumes that all the profits from the SMP portfolio of bonds would be returned, but this is not completely decided yet. Bundesbank President Jens Weidmann said earlier on Thursday it would be up to the German parliament to decide what to do with the German share of the SMP profits.



This return of all the profits - along with cutting interest on euro zone loans to Greece, a deferral of interest payments, maturities extension, and several other measures - allowed the euro zone to cut the amount of new lending to Greece until 2016 to €7.6bn from €32bn.



A rollover of the Greek bonds in investment portfolios of central banks would increase the overall Greek public debt by 0.1pc of GDP in 2020 and 2022, the document showed.



But this would be offset by new debt relief measures pencilled in by international lenders for the coming years that would cut Greek debt by 2.7pc of GDP by 2020 and 5.1pc of GDP by 2022, the document said.



This new debt relief could happen once Greece reaches a primary surplus - a positive budget balance before servicing debt - and if Greek reforms are on track, euro zone finance ministers decided on Tuesday.

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