Paul De Grauwe and Yuemei Ji — Why the ECB should not insist on repayment of its Greek bonds

When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.

Vox.eu
Why the ECB should not insist on repayment of its Greek bonds
Paul De Grauwe, Professor of international economics, London School of Economics, and former member of the Belgian parliament, and Yuemei Ji, Lecturer, Brunel University London