By Stephen Fidler
Of THE WALL STREET JOURNAL
BRUSSELS (Dow Jones)--The European Central Bank has made key concessions over its holdings of Greek government bonds that will contribute to a reduction of Greece's debt burden, according to people briefed on Greece's ongoing debt-restructuring negotiations.
The ECB has agreed to exchange the Greek government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks under way find a successful outcome.
(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)
The ECB will not make a loss on the transaction, but it is not clear whether the bank will exchange the bonds at the below-par price at which it purchased them or whether it will make a profit, these people said. An ECB spokesperson declined to comment.
The idea is for the ECB, in effect, to exchange the Greek bonds for bonds of the European Financial Stability Facility, the euro zone's temporary bailout fund. The EFSF will not hold the bonds on its balance sheet, but will return the bonds to Greece and Greece will then agree to repay the EFSF for the purchase price of the bonds.
The arrangement could reduce Greece's debt by as much as EUR11 billion, analysts estimate--the difference between the ECB purchase price of the bonds and their face value.
However, the people briefed on the negotiations said that national central banks of the euro zone--estimated to hold in their investment portfolios some EUR12 billion in Greek bonds--will not participate in any debt-reduction exercise, implying they will insist on being paid in full.
Meanwhile, a German proposal for Greece's bailout loans to be paid first into an escrow account that will pay interest to creditors before being directed to the Greek budget has gained support among other official creditors--but Greece opposes the idea, these people said.
-By Stephen Fidler, The Wall Street Journal;
[email protected]
(END) Dow Jones Newswires
February 07, 2012 16:42 ET (21:42 GMT)
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