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The Central Bank of Greece is preparing a petition to keep local corporations from buying new ones from the European Central Bank after March as the main bond buying process to deal with the epidemic is expected to end.
Several members of the ECB say they are ready to find a way to continue buying Greek bonds until next year when they meet on Thursday. But Greek officials fear that legal restrictions could mean that the ECB’s purchases on the country’s debt are significantly lower than in other countries.
Officials in Athens are keen to prevent the country’s stigma from happening again without the protection of ECB purchases after € 1.85tn Pandemic Emergency Purchase Program (PEPP) stop buying net in just three months.
The ECB is often banned from buying bonds issued by Greece because it is the only eurozone country that was voted under the financial grade by major credit bureaux.
However, the central bank acted contrary to its ban on buying non-essential bonds that allowed it to resume buying Greek loans when it launched PEPP in March 2020.
The ECB has bought € 35bn of Greek bonds over the past two years. Once it stops buying everything under PEPP, the central bank is expected to continue buying bonds under the Asset Purchase Program which has been in operation. But the policy is prohibited from purchasing unnecessary bonds.
Greek lending rates have plummeted since the ECB began buying its bonds. Bond yields in the country over the past 10 years have dropped from 2.4 per cent while PEPP started falling by 0.5 per cent in August. Bond yields decline as their prices rise.
The country’s yields have recently risen and traders expect their spread – the increased interest Athens should pay compared to Germany when it sells a new loan – a sharp rise if the ECB significantly reduces Greek debt it buys.
Mark Dowding, chief financial officer at BlueBay Asset Management, said this “could be because Greece is not doing well. You can see the spread is growing.”
Some ECB purchases of Greek bonds will still be possible using funds already purchased under PEPP. The central bank has pledged to continue repaying the money “until the end of 2023” and could risk a financial collapse in Greece.
Frederik Ducrozet, an expert at Pictet Wealth Management, predicted that PEPP refunds would be around € 12.5bn a month.
Another option is for the ECB to adopt a new bond-buying policy with the same flexibility as PEPP, although a number of council members have said that this is not possible. The ECB and the Bank of Greece declined to comment.
Greek analysts and officials do not expect the country’s bonds to make more money until the next general election scheduled for 2023, although its economy has grown significantly this year.
Greece has the largest national debt in the eurozone, more than 200 percent of total household income. Athens is still under “additional monitoring” plan by the European Commission set to ensure that it achieves its shortcomings by next year.
A Greek official said the country hopes to avoid another “Deauville moment” – claims the French coastal town that German and French officials surprised investors in 2010 by agreeing to restructure the eurozone debt could include. creditors of special units, initiating the sale of Greek bonds.
Greece was ousted by a “troika” of the IMF, the ECB and the Commission, which set up mitigation measures in Athens. ECB President Christine Lagarde, who was France’s finance minister at the Deauville summit and later served as IMF leader, has since resigned. he said “The demands of Greece were great” – to show compassion and the idea that the country was brutally elected.
Officials are confident that Greece’s economy will not fail despite rising wages. The Public Debt Management Agency often provides future funding and next year seeks to raise about half of the € 10bn debt in the first phase, before PEPP ends.
Greece has rebuilt a savings fund that now stands at around € 40bn, enough to meet the financial needs of at least three years.
Additional reports by Tommy Stubbington
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