–Says Profits On Greek Bonds Will Be Distributed To Shareholder Govts

BRUSSELS (MNI) – European Central Bank Governing Council member Luc
Coene joined the group of ECB officials who have suggested recently that
profits on the bank’s Greek bond holdings might be used to help Athens
reduce its debt load.

“We don’t want to make any profits on this matter,” Coene said in
response to a question about the roughly E55 billion worth of Greek
sovereign bonds the ECB has purchased through its Securities Market
Program (SMP) since May 2010. He added that the profits would be
distributed to the ECB’s shareholder governments next year.

Coene, who heads the National Bank of Belgium, spoke on Monday
afternoon while presenting his bank’s annual report. His comments were
embargoed for publication Wednesday morning.

With negotiations stalling over a new E130 billion bailout plan,
and in turn holding hostage a debt reduction deal with private sector
creditors, the ECB and its constituent national central banks have been
under increasing pressure in recent weeks to make a contribution to help
reduce Greece’s debt-GDP ratio to the targeted level of 120% by 2020.

Because of fiscal backsliding and a deeper-than-expected recession
in Greece, hitting that target will now require an estimated E15 to E20
billion more than had been projected last October, when EU leaders
agreed on both the new bailout package and the private sector debt
reduction deal. And even that new estimate is evolving.

Last Thursday, ECB President Mario Draghi hinted strongly that the
bank might be prepared to contribute by forgoing some profits on its
Greek bonds — though not by actually taking a loss on them, as the
private sector creditors have agreed to do.

In an interview with French daily Liberation, published Tuesday,
ECB Executive Board member Benoit Coeure revealed a bit more about the
central bank’s thinking. He noted that the ECB had acquired its Greek
bonds
at a price below face value, adding: “If there is a profit, like all
monetary
revenue, it would qualify for distribution to member states, which could
use it to contribute to the sustainability of Greek debt.”

While Draghi spoke of redistributing “parts of its profits,” Coene
and Benoit seemed to be talking more about the standard central bank
practice of passing their profits on to their governments. It would then
presumably be up to the governments to decide whether the money would be
used for Greek debt relief.

Coene also said that the National Bank of Belgium would not need to
raise additional capital even if it wrote off the entire value of its
Greek government bond holdings. “Even if we were to take a 100% loss on
everything, then we wouldn’t need a capital increase,” he said.

Compared to other advanced economies, particularly the US and
Japan, Europe’s fundamentals looked good, but “the reality is different
because the Eurozone is not one country,” Coene said.

–Brussels newsroom: +324-9522-8374; pkoh@marketnews.com

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