Helm Capital - Bank To Avoid Bond Losses. - By: bizjournalists

Helm Capital watched with interest as European policy makers began negotiations with the European Central Bank over how to protect it from taking a loss on the 55 billion euro of Greek bonds that it holds.

The proposed restructuring of Greek national debt, which would see a 50 per cent loss for private sector bondholders, has so far excluded the ECB from taking a loss. One option currently on the table would see the ECB exchange its currently held bonds for an alternative form of Greek sovereign debt which would not be vulnerable to a loss. Talks are continuing and Helm Capital observers feel that a consensus is some way off yet.

Another way of helping Greece would be for the ECB to forego these profits, for instance by selling the bonds back to Greece at the price it paid for them. However, the ECB has so far given no indication that it is willing to do so, with some of its governing board members saying that giving up on profits would clash with the bank's ban on funding national governments.

Meanwhile, amid further signs that economic recovery may still be some way off, European Union officials have called for political leaders to focus on promoting growth. The president of the European Commission, Jose Manuel Barroso, called on governments to formulate concrete policies that would fuel employment and growth.

The negotiations on refinancing Greece’s privately held debt are continuing with one of the main stumbling blocks being the ECB’s reluctance to share the burden of losses, with some banks and fund owners even going so far as to threaten legal action.

A European Union official said that the European Commission, the executive arm of the European Union, has asked the rest of the 17-country eurozone to help foot the bill for the missing €15 billion.

The official also said the debt inspectors — the so-called troika of the Commission, the European Central Bank and the International Monetary Fund — have found that Athens has reached the limit of what can be achieved by budgetary spending cuts and by having private investors take losses on their Greek bonds.

The gap could be filled either through a third bailout from Greece’s EU partners or by national central banks and state-owned banks such as France's Caisse de Depots taking a cut on their Greek bondholdings, the official said.

“The pressure is building significantly on all those involved in the talks as Greece has bonds worth 14.4 billion euro maturing in March, which they must either pay or default on”, said one of Helm Capital’s economists that has been following the talks.

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