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In a major reversal, European Central Bank could help ease Greek debt

As politicians face crunch time, the bank's offer would set a new precedent.

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A carnival float called 'But, where is the crisis?' shows the head of the European Central Bank Mario Draghi (top) and European leaders during the carnival parade in Viareggio, Italy on Feb. 5, 2012. (FABIO MUZZI/AFP/Getty Images)

BERLIN, Germany — With Greece on the cusp of a deal to secure a bailout, the European Central Bank is reportedly prepared to play a crucial role in reducing the country’s crippling debt burden. The ECB's move is a significant reversal, given that officials had rejected any such assistance in the past.

The news comes as the coalition parties in Athens finally prepare to discuss the draft plan for tough reforms, following days of delays.

The three parties were handed the 50-page text on Wednesday morning after Prime Minister Lucas Papademos and officials from the troika of international lenders, the ECB, the European Union and the International Monetary Fund, agreed on the final details late Tuesday night.

Papademos, the technocrat ushered in to help rescue Greece’s economy, needs to get the green light from the party leaders for the reform package before he can access the new 130 billion euro ($172 billion) rescue package to avoid bankruptcy.

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A looming March 20 debt payment of 14.5 billion euros means that, according to euro zone officials, the full package has to be approved before February 15.

However, the politicians, with an eye on forthcoming elections, have been dragging their feet despite the urgency of Greece’s situation. They are reluctant to approve deeply unpopular measures including massive wage and spending cuts.

While the political circus continues in Athens, there are reports that the ECB will also help Greece meet its funding requirements.

According to the Wall Street Journal, the ECB will sell its Greek holdings at a price below face value to the European Financial Stability Fund (EFSF). The ECB would in effect lose out on any interest on the Greek debt it had bought up in May 2010 in an effort to push down borrowing costs for Athens. The EFSF would return the bonds to Greece, which would then agree to repay the fund. The newspaper reports that the arrangement could reduce Greece’s debt by as much as 11 billion euros.

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The ECB plan would make it easier for Greece to reach a deal with private creditors, who are offering to shave 100 billion euros off the government debt they hold.

The debt swap deal would help Athens reduce its debt burden from the current 160 percent to 120 percent of GDP.

Meanwhile there is news that Germany may be thinking about splitting up the bailout into two parts. The Financial Times Deutschland reports on Wednesday that Finance Minister Wolfgang Schaeuble is considering postponing the bulk of the rescue fund to keep up the pressure on Athens to implement reforms.

According to the report, the proposal would see Greece only getting 30 billion euros in the coming days with the remaining 100 billion euros held back for now.

Schaeuble is reported to have discussed the plan with the Dutch and Finnish finance ministers last Friday.

The 17 euro zone finance ministers are due to meet on Thursday, after a gathering scheduled for Monday was postponed in the absence of a deal in Greece.

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http://www.globalpost.com/dispatch/news/regions/europe/120208/european-central-bank-could-help-ease-greek-debt