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ECB may take losses in second Greek debt restructuring: officials

By Jan Strupczewski, Luke Baker and John O'Donnell

BRUSSELS -- European policymakers are working on “last chance” options to bring Greece's debts down and keep it in the eurozone, with the ECB and national central banks looking at taking significant losses on the value of their bond holdings, officials said.

Private creditors have already suffered big writedowns on their Greek bonds under a second bailout for Athens sealed in February, but this was not enough to put the country back on the path to solvency and a further restructuring is on the cards.

The latest aim is to reduce Greece's debts by a further 70-100 billion euros, several senior eurozone officials familiar with the discussions told Reuters, cutting its debts to a more manageable 100 percent of annual economic output.

This would require the European Central Bank and national central banks to take losses on their holdings of Greek government bonds, and could also involve national governments also accepting losses.

The favored option is for the ECB and national central banks to carry the cost, but that could mean that some banks and the ECB itself having to be recapitalized, the officials said.

The ECB declined comment on Friday.

Planning is in the early stages and no formal discussions have yet taken place. But there is an awareness that Greece is way off-track in improving its finances and that aggressive action is needed to keep the country inside the eurozone.

Officials described a further restructuring of Greek debt as a last chance to restore the country to solvency, with the agreed goal of cutting its debt to 120 percent of GDP by 2020 already seen as far beyond reach.

The International Monetary Fund, a party to the two rescue packages Greece has so far received, is in favor of overhauling Athens's official-sector loans — a process policymakers refer to as “OSI” or official-sector involvement.

“If I were to assign a percentage chance to OSI in Greece happening, I would say 70 percent,” one eurozone official involved in the deliberations told Reuters.

30% Option

One of the options being worked on would involve the ECB and national central banks in the Eurosystem writing down the value of the Greek government bonds they hold by 30 percent, under a process that bankers refer to as a “haircut.”

Total outstanding official-sector credits to Greece, which also includes bilateral loans extended to Greece by eurozone governments, is about 220-230 billion euros.

A 30-percent writedown would therefore amount to slightly more than 70 billion euros, one official said. Another put the figure at between 70 and 100 billion euros, depending on how the process is carried out.

“It is very complicated and the precise method has not been decided yet because it is very early days,” one source said.

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