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On 1, yes they should. There is nothing to prevent the ECB from repo-ing them at a steep discount with respect to the market valuation which already are about 50% of par value.

So, if you have a Greek bond and supposedly you can sell it at a 50% discount in the secondary market, why could you not repo it at a 60% discount?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Apr 17th, 2011 at 02:50:47 PM EST
[ Parent ]
Of course that would be the sane and sensible view. But it is not logically impossible to believe that the central bank should only rediscount pristine bonds. The logical inconsistency is between admitting that it is proper for the central bank to rediscount dirty bonds before the default and not wanting to rediscount less dirty bonds after the default.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Apr 17th, 2011 at 05:14:09 PM EST
[ Parent ]

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