Hypocrisy from the ECB on Greek Write-Downs

ECB couldn’t participate in Greek haircut: Nowotny | Reuters.

The ECB is not allowed to write-down its Greek bonds according to bank official Ewald Nowotny. According to this policy maker, a write-down would amount to indirect state financing by the ECB, which is disallowed under its charter.

Of course, the OMT is also indirect state financing by the ECB. Under this plan, the ECB will purchase distressed sovereign debt on the secondary market and lower its yield. By taking this debt off the market, the sovereign in question will be able to issue more debt on the primary market at a lower cost. Hence, the ECB is indirectly financing the sovereign.

Basically, the ECB will do whatever it wishes to save the euro as long as the Germans are on board. With an election looming, the Germans are opposing any debt write offs for Greece, so the ECB is against them, too.

These bailouts and changes in monetary policy might be keeping a lid on the debt crisis, but they are simultaneously fanning the flames of resentment in the periphery.


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