Already mired in controversy about whether it should play a greater role in solving the European financial crisis, the European Central Bank is facing criticism over what they’ve already done to help — buying Greek debt.
Negotiators involved in lowering Greece’s private-sector debt (known as Private Sector Involvement) believe the ECB should also accept a haircut on the Greek debt on their books.
Their argument is as follows: the ECB bought Greek debt at a discount, or below face value, and yet they expect to be repaid at full face value. Private-sector creditors are asking: why should the ECB get 100 cents on the euro when they paid less than that? And should the ECB be making a profit on Greek debt as the country struggles on the massive weight of its obligations?
Critics say they don’t expect the ECB to take the same level of losses as the private sector (currently expected to be 50 cents), but wonder why the ECB isn't open to settling simply for what it already paid for that debt. In other words, if they paid 80 cents for a one euro bond, why can't they just accept 80 cents?
Those involved in the negotiations said the ECB staff isn’t open to discussion on the matter. Advocates for the ECB’s position said the bank is getting paid to backstop the country, and as the lender of last resort, the ECB should be paid a fee for that service.
It isn’t known how much Greek debt is at the ECB — it doesn't make that number public. The central bank has bought Greek debt in the secondary market and also accepted it as collateral. A consensus price among negotiators, based on how Greek debt has traded since early 2010, is about 75 cents on the euro. The ECB won’t say and won’t comment on the controversy.
The question may very well come up at tomorrow’s press conference after the ECB announces its monthly decision on interest rates.