What will the ECB do with Greek bonds – Interest rates are not rising

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In one of the most crucial meetings for Greece in recent years, the ECB bankers are expected tomorrow to “set up” the new architecture of the quantitative easing program, in which there will be a “file” for financing Greek government securities markets. even if the country will not be included in the Permanent Asset Purchase Program (APP). In terms of interest rates, despite the pressure for faster growth created by the rise in inflation, the ECB is not expected to leave the slightest such margin before 2023.

Although a scenario of postponing the ECB’s decisions on the quantitative easing program has been discussed recently, following the emergence of the coronavirus Omicron mutation, the issue will eventually be discussed at tomorrow ‘s board meeting and decisions that have been “fermented” are expected to be ratified. in the background in recent months. The extraordinary bond market program for the pandemic (PEPP), through which the ECB has already proceeded to purchase bonds worth 1,565 trillion. euro, it is considered certain that it will not get another extension and will be completed at the end of March 2022.

The sharp rise in inflation and the relatively good state of the eurozone economy do not leave much room for the extension of the emergency program, while the ECB will continue the quantitative easing through the regular program, APP, which currently has a monthly bond market rate of 20 billion. euros, while with PEPP the markets are more than three times. At this point, ie regarding the transition from one program to another, the question arises for the further support of Greece, as our country was included in the PEPP in excess of the rules that stipulate that participation in quantitative easing requires evaluation. investment grade. In the regular program, despite the efforts made by G. Stournaras, the “tough” bankers of the North rejected the proposals for a special regulation that would allow the participation of Greece.

However, according to information, the Greek bonds, in which the ECB has invested more than 35 billion euros, found a way not to be deprived of their … strongest buyer. In particular, it is expected to be decided that the ECB will collect interest payments and amortization from PEPP bonds and reinvest them in bonds of the countries participating in the program, ie in Greek. In fact, there will be flexibility so that the proceeds from the securities purchased can be used to purchase bonds without geographical restrictions. That is, if an amortization payment is made e.g. from Italian bonds, not to invest this amount only in Italian bonds, but to be able to invest in Greek as well. In essence, a financial “dossier” will be created, which the ECB will use according to the needs of the individual economies.

In terms of interest rates, the ECB will move very far from the Fed, which today is expected to give a “signal” for an increase, perhaps before the end of the first half of 2022. According to Bloomberg, the ECB forecasts for inflation state that they will not exceed 2% in 2023 and 2024, ie the rise of 2022 will be temporary. This means that Christine Lagarde will insist again that there is no reason to change the schedule of the next interest rate hike, which according to current data is not expected before 2023.

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