The amount of Greek debt held by its creditors is substantial. Creditors have booked their holding of Greek debt at purchase price. Should Greece be declared bankrupt, then holders of Greek debt – including the ECB – will have to write down the value of Greek debt to its markets value, which would be close to zero.
This would wipe out the share capital of the ECB – the European Central Bank – and while its share capital would be replaced, it would be a huge embarrassment to the whole Euro area – any way you measure it – should debt problems in a country economically as small as Greece is – wipe out the share capital of the ECB.
It is like a bankrupt Tennessee should take out the US Federal Reserve System. Over there it would be unthinkable - over here it is not unlikely.
It might well be that Greece in reality is bankrupt but formally the debt likely will be restructured to carry no interest, be everlasting or whatever advanced bookkeeping they will come up with – to avoid making such write offs – and to spare Euro area tax payers from footing the bill already now.
This would wipe out the share capital of the ECB – the European Central Bank – and while its share capital would be replaced, it would be a huge embarrassment to the whole Euro area – any way you measure it – should debt problems in a country economically as small as Greece is – wipe out the share capital of the ECB.
It is like a bankrupt Tennessee should take out the US Federal Reserve System. Over there it would be unthinkable - over here it is not unlikely.
It might well be that Greece in reality is bankrupt but formally the debt likely will be restructured to carry no interest, be everlasting or whatever advanced bookkeeping they will come up with – to avoid making such write offs – and to spare Euro area tax payers from footing the bill already now.
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