ECB split on how to handle any Greek bond losses: sources

Wed Jan 25, 2012 3:01pm EST
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FRANKFURT (Reuters) - The European Central Bank has ruled out taking voluntary losses on its Greek bond holdings but is now debating how it would handle any forced losses and whether to explore legal options to avoid such a hit, central bank sources told Reuters on Wednesday.

Earlier this month, speculation that the bank was considering taking losses on its Greek bonds as part of broader moves to stabilize Athens' finances grew after ECB President Mario Draghi repeatedly dodged questions on the issue.

One source close to talks among ECB policymakers said that while France, Italy and the ECB board in Frankfurt were against accepting losses, some national central banks, which have expressed reservations over the bond purchases from the start, now accepted that losses may be unavoidable.

"The ECB will not take losses on its Greek bond holdings voluntarily ... but there is a fierce debate within the ECB on how to handle forced losses," the source said.

Another source said the bank was holding regular talks on Wednesday and Thursday and aimed to hammer out its position on the losses it should or should not be willing to take on its Greek bonds.

The ECB declined to comment.

Athens has been in talks with private creditors on a voluntary debt swap deal that would wipe 65-70 percent off the face value of its bonds.

But it has also threatened to enforce losses on private investors if fewer than expected sign up to the deal voluntarily.

If it takes that route, the question is whether the ECB would then be able to avoid taking writedowns on the Greek bonds it has bought since starting a controversial bond buying program in May 2010.   Continued...