The European Central Bank (ECB) has announced that it will exchange its €650 billion in existing Greek sovereign bonds for new bonds to be issued by Greece. The ECB’s president telegraphed the move last week.
The Wall Street Journal sums it up nicely:
The exchange is aimed at protecting the ECB and the 17 central banks that make up the euro from any efforts to force the central bank to take losses through collective-action clauses connected with negotiations between private-sector creditors and Greece, according to a person familiar with the matter.
Not so nicely put, the ECB won’t lose a eurocent on the swap, even while it encourages private bondholders to take a haircut recently said to be around 70% of the net present value of their Greek bonds.
If Greece were to announce tomorrow that it was leaving the euro, no one should be surprised. The country is getting little help in turning itself around, but its partners in the Eurozone and the ECB are guaranteeing their own profits as they demand that Greece founder for years on end.
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