Piraeus Bank Renews ‘Phantom Bonds’ as Greece Props Up Lenders

Piraeus Bank SA rolled over 4.5 billion euros ($4.9 billion) of bonds issued to itself and used as collateral for emergency loans from the Bank of Greece as the nation’s lenders struggle to survive.

The three-month notes, which are guaranteed by the Greek government, replace securities issued in April, according to data compiled by Bloomberg. Greek banks need to renew another 12 billion euros of similar debt this month, the data show.

Such “phantom bonds” are designed to get around the European Central Bank’s emergency lending rules and amount to a “hidden bailout” by taxpayers, former Finance Minister Yanis Varoufakis wrote on his blog last year. The ECB tightened collateral conditions on Monday, making it more difficult for Greek banks to access the funds that have kept them alive.

“It’s perfectly legal but tests the bounds of logic,” said Ioannis Glinavos, a senior lecturer at the University of Westminister in London. “It’s circular financing, artificially inflating the ratings so it can draw liquidity out of the euro system.”

While the risk of emergency liquidity assistance is nominally borne by the national central bank that provides it, the Frankfurt-based ECB has broad discretion over the terms.

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