Haircut time for the European Central Bank?

So will the European Central Bank take a haircut on its Greek bonds?

I pushed the case last month. And the Wall Street Journal reported this morning that it was coming, via a complicated swap with the European Financial Stability Facility (EFSF).

But according to  Reuters the central bank’s governing council is still divided on the matter.

I have an inkling about what the division may be about. I spoke to a member of the ECB council at the World Economic Forum in Davos last month, who told me that he personally was in favour of selling the Bank’s (estimated) €5obn of Greek bonds to the EFSF in order to contribute to Greece’s debt forgiveness. He even said that the ECB president, Mario Draghi, was reasonably well disposed to the idea.

The problem?

“The lawyers say no.”

My source suggested that this resistance could be overcome. But one can understand why it’s not happening quickly, especially given the German hypersensitivity about the ECB’s legal constitution.

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