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ECB Bond Investment Plan – How to Buy (and) Greek Bonds

LAST UPDATE 16:20

The European Central Bank will buy bonds from Italy, Spain, Portugal and Greece with part of the proceeds from the maturity of German, French and Dutch debt in an effort to reduce the difference between their borrowing costs, Reuters reports. citing sources.

The ECB will begin this balancing act on Friday to prevent financial fragmentation between eurozone countries from being hampered in its plans to raise interest rates in order to counter the inflation rally. At the same time, a new plan will be presented next month, such as the ECB announced at its extraordinary meeting on 15 June.

According to a Reuters report, the ECB has divided the 19 eurozone countries into three groups – donors, recipients and neutrals – based on the size and speed of growth of bond margins in these countries in recent weeks. For its information, the agency cites discussions with six people at the ECB’s annual forum in Sintra, Portugal.

The ECB will transfer to recipients a portion of the cash from bonds it purchased from “donors” under the emergency pandemic asset purchase program (PEPP), with bonds from “neutral” countries acting as safeguards, the same sources report.

The lists, which will be reviewed every month, reflect the division between the region and the center that emerged during the eurozone’s first debt crisis a decade ago, the agency said.

The recipients include a handful of countries considered by investors to be more risky due to high public debt or poor growth, such as Italy, Greece, Spain and Portugal, sources told Reuters.

The list was initially longer before the Board reduced it.

The group of “donors”, meanwhile, consists of about half a dozen so-called core countries that are considered safer. It includes Germany, France and the Netherlands, according to the same sources.

An ECB spokesman declined to comment to Reuters.

Although repayments [στα ομόλογα] to be made in July and August are important, the ECB knows that a simple reinvestment of revenue will not be enough to calm investors.

Thus, it has accelerated work on a new tool that will allow it to make new purchases where needed, if a country meets certain conditions. Details of the new tool are expected to be announced at the next ECB meeting in July.

This could be done by the European Commission, based on the financial rules or financial recommendations of the Commission itself, or by the ECB by assessing debt sustainability, as it did with Greece a few years ago, sources told Reuters.

The ECB will then be able to drain cash from the banking system to offset bond purchases, most likely through special auctions in which banks will be able to secure more favorable interest rates if they “park” their funds in the central bank.

Flexibility in reinvestment

The Governing Council of the ECB has already announced that it intends to reinvest the amounts of capital from the repayment of securities acquired under the PEPP program, “at least by the end of 2024”. At the same time, he clarified that “in any case, the future roll-off of the PEPP portfolio will be regulated in such a way as to avoid interference in the appropriate direction of monetary policy.”

In fact, after its extraordinary meeting on June 15, the Board The ECB has announced that it has decided to “exercise flexibility in reinvesting PEPP securities as they expire, in order to maintain the operation of the monetary policy transmission mechanism, which is its mandate for price stability. ”

ECB: Flexibility in reinvestment by PEPP, a new tool is coming

Source: Capital

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