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Part of the Greek "bailout" currently under discussion involves the ECB swapping its holdings of Greek bonds for newly issued EFSF bonds, at face value. So the EFSF will be left holding the bag.

You really couldn't make this shit up:

Jens Weidmann says the ECB cannot participate in a debt restructuring as this would amount to monetary financing; he also seems to oppose forgoing on the ECB's profits; also expresses criticism of the expansion of the ECB's balance sheet;
(Eurointelligence daily briefing summary, 15 February 2012)

The reference to "forgoing profits" is to the bond swap with the EFSF at par. The reason is that Greek bonds were bought by the ECB at a higher yield than the EFSF bond yield, and a swap at par value, while representing no loss in "hold to maturity" accounting, is actually a loss (forgoing of profits due to the lower yields).

So Weidmann really does think it's right for the ECB to make a profit off the penal rates of lending to Greece.

Weidmann opposes the eurosystem's help for Greece

Jens Weidmann is opposed to any mechanism like a rapid distribution of the national central banks' gains on Greek bonds to the governments that would lead to a contribution by the eurosystem to the second rescue package for Greece. ,,The key point is that we (the eurosystem's central banks) are not allowed to renounce to demands against a state. This would be a form of monetary financing of that state", Weidmann said in an interview with Handelsblatt. The Bundesbank president appeared to directly contradict ECB executive board member Benoit Coeuré who had told Libération on Tuesday: ,,Should there be a profit (on Greek bonds), like all monetary revenues, it is to be distributed to the (member) states", the board member had said. "They could use it to contribute to the sustainability of Greek debt".

Weidmann further stressed that he was worried about the increasing risks that the eurosystem is taking on its balance sheet. Examples are the SMP and the loosening of the collateral framework by the central banks in France, Italy, Spain, Portugal, Austria, Ireland and Cyprus with quality standards below the standards currently in place in the eurosystem. ,,Also Mr. Draghi has conceded that with this acceptance of additional collateral the risks increase", the German central banker said. Weidmann announced that the Bundesbank would probably announce an increase of its provisions of €1.6bn last year at its annual press conference in March in order to cover potential risks and losses.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Feb 15th, 2012 at 05:46:15 PM EST
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