ECB Said to Negotiate With Greece on Investment Portfolio Bonds

ECB Said to Negotiate With Greece
A Euro sign sculpture stands in front of the European Central Bank's (ECB) headquarters in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

The European Central Bank is negotiating with Greece on behalf of its member central banks to exempt the Greek bonds in their investment portfolios from a debt restructuring, two euro-area officials said.

The ECB wants to swap the investment portfolio bonds for debt that’s exempt from collective action clauses, or CACs, to avoid losses in a private-sector debt restructuring, the officials said late yesterday. The central bank has already swapped Greek bonds it bought as part of its asset-purchase program for such securities, a third official with knowledge of the situation said.

Greece wants the bonds in the central banks’ portfolios to be included in a private-sector deal aimed at slicing 100 billion euros ($132 billion) off its debt, the officials said. The central banks are arguing they would have dumped the bonds if they were normal investors and that they shouldn’t be forced to take losses on them, the officials said.

An ECB spokesman declined to comment. Greek government spokesman Pantelis Kapsis wasn’t immediately available to comment.

The tussle comes as euro-area finance ministers gather in Brussels on Feb. 20 to decide on a second bailout for the embattled nation and sanction the private-sector bond swap.


The risk for central banks is that taking losses on bonds in their investment portfolios may erode their capital. On the other hand, exempting the portfolios of euro-area central banks could encourage other public investors, such as central banks outside the currency region, to seek similar treatment.

The value of Greek bonds held by euro-area central banks other than Greece in their investment portfolios is less than 10 billion euros, another euro-area official said. Not all 17 national central banks in the euro area have Greek bonds in their investment portfolios. Germany’s Bundesbank doesn’t, the third official said yesterday.

Greece is drawing up legislation to allow the use of CACs and may submit it in coming days, two people familiar with the matter said.

CACs typically make all bondholders subject to losing part of their capital in a retrospective action that does not require the assent of all lenders.

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