By Peter Spiegel in Brussels and Ralph Atkins in Frankfurt
The International Monetary Fund has turned up pressure on European officials to take on more of the burden of filling a widening gap in Greece?s budget by pressing the European Central Bank to take a hit on its 40bn euros in Greek bond holdings.
The ECB bought the bonds at below face value as part of a programme to prevent the collapse of Greek debt markets in 2010. It has also been accepting Greek bonds as collateral for cheap loans to teetering Greek banks. The bonds, with estimated yields in excess of 7 per cent, will provide a big return if Greece does not default and they are held to maturity.
An IMF official denied the fund was pressing the ECB to take writedowns on the bonds, but eurozone officials involved in the talks said pressure to earmark potential gains to fill Greece?s financing hole was fiercely resisted by the ECB.
Private investors have begun to chafe at the ECB?s insistence its bonds be paid in full while the private bondholders are being urged to agree to a cut of at least 50 per cent on the face value of their holdings. Charles Dallara, the lead negotiator for a consortium of banks and insurance companies, yesterday called on ?all parties to honour those commitments?, including the ECB.
Despite the ECB?s resistance, its 23-member governing council has discussed fallback positions. These have included the possibility of the ECB forgoing the profits it expects to make on the bonds, according to one person familiar with its discussions. Another option would be to take losses on Greek bonds held by eurozone national central banks in their own portfolios.
The IMF has concluded the 130bn-euro bail-out plan for Greece agreed in October will no longer enable Athens to get its 350bn-euro debt pile down to a sustainable level by 2020 – the plan?s main goal. Unless bondholders agree to more losses, eurozone governments will have to find more bail-out loans to hit the target.
The IMF analysis, which has determined the October plan would get Athens to a debt level of about 130 per cent of economic output rather than the 120 per cent originally targeted, has also coloured its stance towards private holders of Greek debt. There, the IMF was backing the tough stance taken by eurozone negotiators to squeeze more losses out of private bondholders, officials said.
IMF officials have said the fund does not take a view on where Greece finds support. It also ratcheted up pressure on eurozone states to increase the size of their own rescue fund.
Additional reporting by Alan Beattie in Washington, Alex Barker in Brussels and Patrick Jenkins in Zurich
? The Financial Times Limited 2012