Yesterday, the WSJ reported that the European Central Bank may have conceded to return Greek sovereign bonds to Greece in exchange for less money than the bonds' face value. This is probably the start of something big.

Some analysts have argued that the would-be (and highly probable) development does not constitute debt monetization—converting debt into money. While we would concede that making that argument might be a stretch, ECB willingness to forgive Greece some or all of its expected returns on that debt nonetheless mark a landmark moment in eurozone crisis management.

First, let's go over the rumored plan. According to the WSJ, the European Central Bank would exchange Greek bonds with face value of €50 billion ($64 billion) with the European Financial Stability Fund (EFSF) in return for the latter institution's more highly rated bonds.The key thing here is that the ECB only paid €39 billion for the bonds (as they are badly distressed).

Then the EFSF will give those Greek bonds back to Greece, and receive a payment of at least €39 billion ($51.8 billion). 

Bottom line: Greece is effectively retiring €50 billion worth of debt for just €39 billion.