IMF Paper Says ECB Seniority on Greek Debt Undermines Crisis-Fighting Powers

An International Monetary Fund staff paper that reviewed European Central Bank efforts on the European crisis questioned the central bank's efforts to not take losses on Greek debt holdings, suggesting the decision could hamper future bailout efforts.
In an overlooked technical paper published last week and shared with the ECB, the IMF paper concluded efforts to lower borrowing costs for Spain and Italy may prove futile because it hasn't taken losses on its Greek debt holdings. The paper provided a financial argument for the ECB to restructure its Greek debt, though the report didn't explicitly say the ECB should do so.
By taking a loss on its Greek debt, the ECB would absorb some of Greece's debt and would help to get its bailout program back on track.
But the IMF paper, which was bundled in a set of reports reviewing the euro-zone crisis, suggested ECB restructuring of Greek debt could make any possible ECB program to lower Spain's and Italy's borrowing costs much more effective.
The IMF paper came as officials try to repair a failing Greek bailout program that continues to threaten the euro zone amid fresh calls within the region for the ECB and member states to absorb losses on Greece.
"Essentially, the political point of the paper is that the IMF believes the ECB and the euro governments should take a haircut on their bond holdings, on Greek debt or any other country in the euro zone that is going to restructure its debt," said Domenico Lombardi, a senior economist at the Brookings Institution and a former representative for Italy on the IMF board. Mr. Lombardi added that the IMF paper implies that, without an ECB debt restructuring, a bond-buying program might not be viable.
The IMF disagreed. "This paper has nothing to do with the current situation in Greece," IMF spokesman William Murray said. "The paper you cite is a technical analysis of the possible impacts of the ECB's Securities Market Program and is not about restructuring Greek debt," he said.
The IMF report doesn't explicitly say the ECB should restructure Greek debt holdings. Rather, it pointed out that, because the ECB didn't take losses during the restructuring of private holdings of Greek debt, the ECB has eroded the potency of potential future ECB bond-purchase programs.
It said the ECB could help calm investor concerns, though without elaborating: "It is possible to attenuate market fears...by transferring some of the benefits for the ECB back to private sector bondholders," the IMF said.
The IMF wasn't immediately able to comment when asked if fund management has specifically urged the ECB to restructure its Greek debt holdings. Last week, the IMF said Greece's program is off-track, meaning it isn't meeting the targets needed to put its debt on a sustainable path.

Normally, if the ECB buys Spanish and Italian bonds, as the IMF has suggested, the central bank's purchases in a Securities Markets Program, or SMP, should help to lower the cost of borrowing for those countries. But the ECB gave itself seniority in the Greek restructuring, leaving investors concerned it may do so again if there is a restructuring of Spanish or Italian debt. The more sovereign debt the ECB holds, the bigger the potential loss for investors. That makes buying those bonds more risky, pushing up the premium and sidelining many potential investors. But the ECB is coy about how much it intervenes, leaving bond-purchase programs opaque and investors guessing about their risk.

The IMF paper also said the longer the ECB waits to act, the less effective its bond purchases will be.
"Interventions may be unable to stop self-fulfilling debt default dynamics," the IMF economists wrote.
Top officials from the IMF, the U.S. Treasury and the European Union arrived separately in Greece Tuesday to assess the state of its economy and see if there is any hope of turning the debt-beleaguered country around. The next tranche of bailout financing, which could help the country avoid a default, is tied to the outcome of the assessment.
The paper can be found at the following link, starting on page 47: http://www.imf.org/external/pubs/ft/scr/2012/cr12182.pdf.

http://online.wsj.com/article/SB10000872396390443437504577547342233122180.html

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ας σημειωθεί το ουσιαστικό: τα πράγματα κοντεύουν σε τέτοιο σημείο που μόνο η ΕΚΤ μπορεί να τα διορθώσει και αυτό μπορεί να συμβεί σε ένα βράδυ (εννοείται πως άλλοι αθώοι θα τη πληρώσουν...)

θα έχουμε ξεκάθαρη εικόνα στα μέσα Σεπτέμβρη, έτσι δείχνει... τότε μπορεί να ανοίγει ο δρόμος, μπορεί και να χρειαστούν αρκετοί μήνες για να ανοίξει
Οι οιωνοί δε δείχνουν καλοί...

σε κάθε περίπτωση, πλέον έχουμε καθαρό παράθυρο - ακόμα και για όσους δυσπιστούσαν - για συνολική λύση
μένει στους ανθρώπους να δεχτούν και να αποφασίσουν