The European Central Bank’s acceptance of junk bonds from economies such as those of Greece and Cyprus, thereby supplying liquidity to commercial banks for the next two years, will come at a price, that being an economic monitoring program beyond the streamlining process foreseen in the bailout agreement.
ECB Governor Mario Draghi made it clear on Thursday that economies with a low credit rating will have their bank bonds accepted only through a program that will include economic inspections, which may well pose a problem for Greece’s political parties.
Greek bank sources say that while the new program will not be the same as the bailout monitoring that the country has been subject to since May 2010, an agreement between Athens and the European Union will be necessary to keep an eye on the progress being made toward macroeconomic targets and the course of the necessary structural reforms.
“It is absolutely reasonable that the ECB should ask for a program before providing liquidity to Greece, otherwise there would be serious legal problems for the central bankers of the eurozone,” a banking source told Kathimerini.
The demand for an inspections program will make life more difficult for the government as well as the opposition, given that they have turned the exit from the monitoring program and the rejection of any new program into key points in their rhetoric.
ECB officials have been repeating that the existence of a program (or a high credit rating) would be a condition for the country’s unhindered access to Frankfurt’s cash mechanisms for some months now. Greece’s credit rating is currently three notches below the minimum accepted by the ECB. Local banks have drawn some 45 billion euros to support their cash flow and cover the gap between deposits and loans.
The ECB’s move is a particularly significant one for Greece, as, besides bolstering local lenders’ liquidity, it reflects Frankfurt’s resolve to face up to the problems of the eurozone.