Reinvestment instead of QE
ECB will likely leave Greece out of the conventional bond-buying program after PEPP ends
The European Central Bank is apparently planning to continue to reinvest in Greek bonds after the end of the PEPP at the end of March, but it will no longer include the country in its conventional quantitative easing (QE) program. If that proves to be the case, it will also prove wrong the forecasts of many analysts and markets experts that Frankfurt would find a way to keep acquiring Greek state bonds in order to avoid unrest and a significant widening of the spreads.
It is exceptionally difficult for changes to the regulations of the QE programs (which dictate that only investment-grade bonds are eligible) to get past the ECB Governing Council, which is why the eurozone’s central bank activated the extraordinary and particularly flexible PEPP bond-buying program at the start of the pandemic.
It is now clear that regaining investment grade is an end in itself for Greece so that it can be included in the standard QE. Until then – i.e. by the end of next year, according to some analysts, or in the first half of 2023 per the government – Athens will have to make do with ECB support through bond reinvestments, which will actually be enhanced and last longer. This means that Frankfurt will invest the capital from the maturing Greek bonds in Greek securities – as well as the capital from bonds of other countries also maturing – possibly even beyond the end of 2023.
Sources tell Kathimerini that hopes for Greece to be included in the regular QE program (the APP) are next to zero. As ECB Executive Board member Isabel Schnabel stated recently, Frankfurt is against changing the QE rules. She has said that once the PEPP has expired, Greek bonds will be supported through reinvestments, which the central bank will weigh to see if it is enough. That gave then a slim hope for Greece’s entry into the APP, but this has now all but evaporated – opening the way for a different solution.
“That practically means Greece will be granted extended and enhanced reinvestment,” the same sources tell Kathimerini.