The ECB’s hidden gift to the Greek economy

By Tasos Dasopoulos

In addition to extending the eligibility of Greek bonds, two very interesting points in yesterday’s announcement by the ECB’s Board of Directors make Greek debt managers feel more optimistic about the future.

The first point is the announcement of the announcement that: “The Governing Council of the ECB reserves the right to deviate in the future from the ratings of credit rating agencies, if this is justified, at its discretion in monetary policy, thus avoiding mechanistic dependence on these evaluations “.

With this note, the ECB clarifies that it will not wait for the houses to give the investment grade to Greece to provide protection to its bonds. He proved it last December by creating a special regime for Greece after the end of the PEPP, in which he will continue to buy Greek bonds – in addition to reinvesting in amounts equal to those of maturing securities – if they have a problem in the markets until 2024.

This note covers Greek bonds even in the extreme scenario, in which the rating agencies will not rush to return Greece to an investment grade.

The ECB shows that it treats Greece as if it had the investment level which has been delayed, mainly due to the coronavirus crisis. The rating agencies have proved that in the case of Greece, they only make careful moves. For example, the Canadian company DBRS on Friday upgraded Greece to the BB High level, ie a level below the investment level, but changing the rating from “positive” to “stable”. On the same day, Moody’s, the largest rating agency, despite being scheduled, refrained from announcing its rating for Greece for the fourth consecutive time. This despite the good words she has written in her notes on the resilience of the economy, the good fiscal performance and the promotion of reforms.

The second point of the announcement to be noted is that extending the eligibility of bonds as collateral against financing will last “at least until 2024”. the investment grade regardless of when it will be provided by the rating agencies.

Coverage in extreme scenarios as well

As is well known, the ECB has begun to make the switch to monetary policy, starting the countdown to the end of the period of zero or negative interest rates. Given that the effects of the war in Ukraine have only seen the “tip of the iceberg”, the Euro Central Bank is trying to cover Greek bonds, even the most extreme scenario.

In other words, even if things turn out badly and the Eurozone goes into stagnation or recession, dragging Greece along, the goal of the financial staff to regain the investment grade in 2023 may be overturned.

In order to avoid a sharp “abandonment” of Greek bonds under extreme conditions, the ECB clarifies its position and states that it will be present and will support Greek securities for as long as necessary.