The European Central Bank (ECB) is swapping its Greek bonds for new ones to ensure it isn’t forced to take losses in a debt restructuring, three euro-area officials said.
The Frankfurt-based ECB is exchanging its Greek bonds for those of an identical structure and nominal value, the only difference being they would be exempt from so-called collective action clauses, the officials said on the condition of anonymity. One said the bonds had a face value of about euro 50 billion ($65 billion). An ECB spokesman declined to comment. Giorgios Zanias, chairman of the council of economic advisors to the Greek finance ministry, didn’t respond to calls.
The move may be completed by Monday, the officials said. That could pave the way for a private-sector bond swap that aims to slice about euro 100 billion off Greece’s debt, as the embattled nation struggles to stave off default. Euro-area finance ministers are scheduled to convene in Brussels on Monday to discuss a second bailout for Greece that includes a debt-swap agreement.
An exemption from collective action clauses (CACs) would mean the ECB would not have to participate, should the Greek government impose involuntary losses on bondholders. That may occur private creditors agreeing to a voluntary swap are not many.
Greece will submit legislation to parliament on Tuesday to allow the use of CACs in a debt-swap process that would start on Thursday and conclude on March 9, Athens-based Naftemporiki newspaper reported on Friday.
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. The officials said the new Greek bonds the ECB would receive in exchange for old ones were exempt from CACs. “In Europe, all bond holders are equal, but the ECB is more equal than others, apparently,” said Thomas Costerg, an economist at Standard Chartered Bank. “This could set a dangerous precedent and, by creating a de-facto two-tier market, this could discourage investment in other peripheral debt markets.”
Bundesbank president Jens Weidmann didn’t support the ECB’s decision to swap the bonds on concern that the move would prompt legal action by other Greek bondholders, Der Spiegel magazine reported, citing ECB officials it didn’t name.
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Exempting the ECB from a debt restructuring may weaken the euro, as it implies a senior status over other investors, Chris Walker, a foreign-exchange strategist at UBS AG in London, wrote in a research report on Friday.
“The risk of a voluntary restructuring morphing into a coercive one has arguably increased significantly,” Walker wrote. “If this ECB plan goes ahead, it may appear the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private-sector bondholders, not only in the case of Greek debt, but also regarding the debt of other euro-zone nations the ECB may be purchasing.”
The ECB began purchasing Greek government debt in May 2010 as part of its securities markets programme, which is aimed at restoring the transmission of monetary policy on financial markets distorted by the sovereign debt crisis. Since then, it has bought bonds, including those of Spain, Portugal and Italy, totalling euro 219.5 billion.