In light of the recent fiscal problems in the European Union, and in particular the sovereign bond transactions by the European Central Bank (ECB), economists at The Brattle Group have released a newsletter describing the ECB’s role at the center of the monetary authority of the Eurozone and its preferential position in the Greek bond default.

The newsletter describes the ECB and its functions, the ECB’s role with relation to the national central banks (NCBs) within the Eurosystem, and how these organizations have responded to the Eurosystem’s sovereign bond crisis. As part of the analysis, they present recent balance sheet data for the ECB, German and Greek central banks, and the European Financial Stability Fund (EFSF) and European Financial Stability Mechanism (EFSM) to demonstrate how these organizations have reacted thus far to the Eurosystem’s sovereign debt crisis. The authors also detail the specific terms of the Greek bond restructuring and the favored position of the ECB and Eurosystem’s member central banks to illustrate how the ECB’s transactions may eventually affect individual investors. They anticipate that disputes engendered by the debt restructuring executed by Greece are likely to generate substantial activity in international arbitration forums and other legal arenas.

The newsletter, “The European Debt Crisis and the Role of the European Central Bank,” was authored by Brattle consultants Michael Cragg, Jehan deFonseka, George Oldfield, and Natalia Piqueira. It is available for download below.

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The European Debt Crisis and the Role of the European Central Bank