Milestones for ECB liquidity

Frankfurt may use prior actions the Greece 2.0 program requires to keep buying Greek bonds

Milestones for ECB liquidity

Officials in the Greek government, the European Commission and the European Central Bank are examining the conditions under which Greece could enter the conventional ECB liquidity program once the extraordinary bond-buying program (PEPP) expires.

A decision to that effect is expected at the meeting of central banks on December 16.

Sources speak of a climate for a favorable decision, while Bank of Greece Governor Yannis Stournaras has repeatedly expressed his confidence that the ECB will continue to acquire Greek bonds after the PEPP ends and ensure there are no problems in Greece. However, the right mechanism to allow the ECB to supply cheap cash to Greece is still being sought, even though the country is not at investment grade, as Frankfurt’s rule dictates.

Kathimerini understands that the milestones of the Next Generation EU fund tranches could be used in this context; this concerns a series of reforms and investments, ranging from legislation on waste management to the online connection of tills and card terminals, and the concession of contracts for drafting town plans.

Adherence to the milestone pledges is monitored by Brussels twice a year, as the funds toward the “Greece 2.0” program depend on them. If they are used by the ECB, the milestones will also determine the supply of liquidity to the local economy until its credit rating reaches investment grade.

Greece’s enhanced surveillance status is also a safety clause for the ECB, which Frankfurt has already cited to exceptionally include this country in the PEPP. However, that also expires next year, while the ascent to investment grade may take until early 2023 to happen.

An extension of the enhanced surveillance is not desirable, sources say, by any side at the moment. Still, the Greek side appears to argue that the conventional post-bailout surveillance it will continue to undergo, just like all countries that have emerged from a support program, could also cover the ECB requirements, combined with the Next Generation EU milestones.

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