By Luis Arroyo, in Madrid | The Greek restructuring has been a most impressive achievement. But it has fallen only on private investors’ heads. Public bondholders, like the European Central Bank (ECB), refused to take in their share of losses as everyone else did. When the EBC’s governor Mario Draghi was asked about the ECB’s special protection, turning the central bank into a super-privileged investor, he replied:
“I can answer saying that the SMP was a monetary policy instrument. So the purchases of Greek bonds done under that program responded to public interest policy –general policy considerations. And as such, they deserve protection. This is one reason. The other reason is that I think the balance sheet of the ECB should be protected, because only through the integrity of the balance sheet of the ECB you can have the ECB independence in pursuing price stability in the whole of the euro area, and price stability is in the interest of all the members. So I think that’s one other reason why this exchange of bonds was quite right to do.
“But there is a third reason, I think, that people rarely think about this. I mean, we forget that this money is taxpayers’ money. And so the ECB has, in a sense, the duty to do everything to protect the taxpayers’ money that was entrusted with it. So this exchange of bonds was actually the right thing to do from this point of view as well.”
All of which, as the bondvigilantes blog points out, means he stated these three reasons: as this was done in order to promote public interests via the purchase of these securities, no losses should be incurred. The ECB needs to be protected, and can not suffer losses as this would damage its reputation and its balance sheet. And the ECB is acting on behalf of tax payers, and tax payers should not take losses.
Therefore, private bondholders are not taxpayers and do not deserve being able to avoid losses, do not deserve a legal shield.
Now, the truth is that the ECB is not Greece’s central bank, or Spain’s, nor anybody else’s for that matter. A central bank is an entity member of a state that appoints it to issue sovereign debt, and which doesn’t suffer losses when those bonds fall on the markets because it doesn’t have to sell them to survive. These losses are accounting records but have no consequences over assets.
On the contrary, the ECB is a new central bank, apparently so pure that can never get its hands dirty. It is true that Greece has defaulted, but we all knew it would and should never have come in the euro zone. It is not alone, in that. For the moment Greece doesn’t leave the euro zone, its holes are more or less being covered and that is all.
Yet, who will dare to purchase Greek bonds or invest in Greece knowing that, come default, private investors will pay for all broken commitments?