Greek Debt Could Shrink Rapidly with Leveraged Buy Back

The Greek government could lend money from the ESM bailout fund and buy back its own bonds for 25% of their value, so that every euro would reduce the debt mountain by 4 euros. This idea is being studied by the German finance ministry, according to the German magazine Der Spiegel.

The creative buy back scheme could improve market mood after the EU Summit didn’t deliver, and could lift the euro.

The German finance ministry refused to comment, and stuck with the official policy stance on Greece: that Germany was waiting for the EU / ECB / IMF troika report before making new initiatives. Almost needless to say, the troika report is not expected to show that Greece made progress, to say the least.

However, Spiegel reports that talks with debt holders are in the works, checking out if they would agree to such a deal.

EUR/USD rose towards the EU Summit on hopes for progress regarding Greece and especially Spain. However, it didn’t challenge the all-important 1.3170 line and eventually retreated and closed at lower levels. If this good news gains traction, optimism could return and the euro could rise once again.

For more lines and events, see the EUR/USD forecast.