The European Central Bank has been providing massive amounts of liquidity to euro-zone governments, both directly through the purchase of government bonds and indirectly by taking on large amount of government debt as collateral for lending to banks. The extent of this is unclear, because of the ECB’s reluctance to publish any data on its holdings of government debt.
The American bank J. P. Morgan suggests that the indirect exposure of the ECB to the Greek state is massive, estimating that Greek banks have almost €140 billion in state-related collateral with the ECB. Combining this with the direct holdings of government debt – about €60 billion – you get a total exposure of the ECB to the Greek state of about €200 billion.
And if we believe the German Minister of Finance and the IMF, who say that Greece will soon need to restructure its debt, this ECB exposure to the Greek state will move to centre stage. There are likely to be write-downs on the direct holdings of Greek government bonds of at least 35 per cent to have any significant effect on the debt burden; and, secondly, the Greek-backed paper could become worthless. Potential losses would easily be upwards of €40 billion.
If we compare this loss with the capital and reserves of about €79 billion that the ECB holds, the situation would not look good following a Greek restructuring. The ECB would then have two options: ask euro-zone governments for an injection of capital, or try to print their way back to a reasonable level of capital and reserves.
In other words, it would have to abandon its sacred mission of ensuring price stability and print money, or go to governments and ask for cash – in other words, a bail-out!People’s Movement · 25 Shanowen Crescent · Dublin 9 · http://www.people.ie
087 2308330 · post @ people . ie