Is the ECB Ready to Make Olympian Decisions?
Discussions continue to grow within the ECB regarding Greece and Spain. Over the past week we have heard from Draghi, Nowotny, Noyer et al. The 200 Month-Moving-Average in the EUR/USD has been a line in the sand going back to 2004. It was the US FED and China who formed the bottom in June 2010, and now the torch has been passed to the ECB.
The ECB is holding Greek debt on its balance sheet at par following the last Greek restructuring. While the media indicates they may take a ‘loss’ on their position to help alleviate Greece’s debt-load, they may simply re-mark the position at cost. This would not be a ‘loss’ to the ECB, but rather the ‘fair’ thing to do. It would help Greece get from under its ominous debt load, and create a turning point for its future.
The ECB should buy debt in the secondary market in times of stress and later sell it back to nations they help. When a US bank sees its debt drop in value and CDS blow out, the US bank reports a ‘profit’ based on the cost it would take for them to retire their debt at lower levels. If Greece and Spain were US banks, they would be reporting significant earnings.
The market continues to believe this is a short-covering rally that should be sold into. I believe Draghi et al believe this may be the turning point.