Future support from the European Central Bank to Greece hinges significantly on the attitude of the Bundesbank, whose head, Jens Weidmann, is about to be replaced. The question is whether his successor will be as hardline as he was and whether ECB policy will be affected, with analysts that Kathimerini spoke to appearing quite optimistic.
“We doubt that Weidmann’s successor at the Bundesbank will be more rather than less hawkish than he was. Isabel Schnabel has a very high chance of becoming the next president,” says Eiko Sievert, director at Scope Ratings, adding that “she undoubtedly has a strong record as a central banker and has proven she takes a comparatively balanced view on monetary policy matters, which could also align well with the view of Germany’s forthcoming coalition government.”
Athens needn’t worry too much, according to Dennis Shen, director in Sovereign and Public Sector ratings at Scope Ratings: “As long as Greece remains on good terms with European authorities, this relationship with the EU raises the likelihood that the structuring of QE post-Covid may remain more supportive of Greece, even if Greece is still not rated investment grade,” he tells Kathimerini.
“In addition, given Weidmann’s lengthy record of being on the more hawkish end of the ECB, his departure does potentially raise the possibility of a comparatively more dovish ECB architecture after this Covid-19 crisis – this includes with respect to how the ECB adapts asset purchases over 2022, such as, per example, to anchor market access of vulnerable issuers like Greece under the post-crisis transition,” he notes.
The Bundesbank will also have to reflect the views of the new coalition government, and Oliver Rakau, chief German economist at Oxford Economics, says, “A simplified rulebook focused on limiting the immediate post-crisis fiscal retrenchment in highly indebted countries may be the easiest compromise.”
“I think that a holistic view of the coalition treaty implies that Germany won’t massively change its positions on key policy topics. In other words, don’t underestimate Germany’s status quo bias. I believe that on balance the new coalition will look somewhat more favorably toward the ECB’s monetary policy and EU initiatives toward sensible reforms of fiscal policy rules,” he says.