From the Wall Street Journal – ECB Set to Become World’s Largest Junk Bond Fund:
As imperfect a guide as ratings are to actual events, the trend is clear: more and more European debt is becoming more and more likely to default.
In public, the ECB has refused to admit that possibility this year, President Jean-Claude Trichet pouring scorn on the very idea. However, its actions tell a different story. Last week, it announced plans to increase its capital, strengthening its balance sheet against possible losses.
The risks it is carrying are growing every week. The ECB has more than €330 billion outstanding in loans to banks in the four problem countries. It now owns outright over €72.5 billion of euro-zone government debt, chiefly from Greece, Ireland and Portugal, the three countries considered most likely to default…