ECB May Hold Out on Greek Debt

Central bank not likely to show its hand until Greece cuts deal with investors.

The European Central Bank is likely to refuse to show its hand on how it will help cut Greece’s debt burden until investors and the government have agreed to a deal, said economists from ING Group to Deutsche Bank.

While Greece’s creditors are increasing pressure on the ECB to join the bond swap being negotiated with the country, central bankers have remained silent on their intentions. Economists say the ECB wants to see the private-sector agreement concluded before indicating its strategy, which may include forgoing profits from its Greek bonds or a transfer to one of the region’s rescue funds.

Even if the ECB remains outside the outright restructuring of Greece’s debt, policy makers have not ruled out other involvement. The region’s central banks will await the outcome of the deal currently being negotiated, Bundesbank board member Joachim Nagel told Deutsches Anleger Fernsehen yesterday.

Economists have suggested options that include the ECB selling back its holdings to Greece, or to Europe’s temporary bailout fund, the European Financial Stability Facility, or to its successor, the European Stability Mechanism.

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