The European Central Bank appears to be doing its part to help Greece reduce its crushing debt burden, by transferring profits from its Greek bond holdings to eurozone governments. There is just one problem: It remains far from clear that all this money will wind up in Athens.
By handing over its profits to national governments, the ECB is simply adhering to its long-standing rules. But it has no control over how Spain, Italy and others use their share of the billions they stand to gain from the ECB's €50 billion in Greek bond holdings.
The ECB is expected to make a substantial profit on the bonds because it purchased them at a steep discount on the open market, and now it appears these bonds will be repaid in full. The ECB was spared from taking any losses as part of a €130 billion rescue deal for Athens despite mounting pressure in recent weeks for the central bank to take a bigger role in writing down Greece's crushing debt load.
The arrangement between the ECB and eurozone governments reflects the delicate balance the ECB faces between helping Athens survive in the euro and protecting its own independence and credibility. The ECB bought Greek bonds with a face value of around €50 billion in 2010 as it fought to keep Greece's debt crisis from sweeping across Europe.
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