QE exclusion a ‘de facto Grexit’

Greece will be dealt huge blow if the European Central Bank does not include the country in its decisions on the bond-buying program, or quantitative easing (QE), expected on Thursday. Reports in the German press on Monday spoke of Greece being an exception, raising the alarm at the Finance Ministry in Athens and at the country’s central bank, as that scenario has not yet been refuted.

ECB officials are only saying that no decision has been reached yet, and everything will be discussed and decided at Thursday’s governing council meeting. If the ECB does exclude Greek bonds from the list of those it will acquire, that would create a very negative framework for the Greek economy.

Officials familiar with the talks have told Kathimerini that it would be very difficult to gain support for a decision to buy Greek bonds at this stage, “given that a party may come into power in which several people think it would be desirable to restructure Greek bonds that the ECB has already bought,” as one put it.

At the Finance Ministry they say that a possible exemption of Greece from the program would constitute a “de facto Grexit” for three reasons. The first is that it would be unprecedented for Greece not to benefit from an ECB decision regarding the Eurosystem. If Greece is left out, that would effectively mean the country being excluded from decisions for the other 18 eurozone members.

Secondly, it would put an end to ECB President Mario Draghi’s pledge that as long as Greece is in a program, the ECB will support it; and last but not least, there will be two-speed yields in state bonds within the eurozone: One will concern the Greek bonds that are already hovering around 10 percent – and will likely grow further if Greece is excluded from the QE – while the bonds of all other eurozone states will not exceed 2 percent.

Bank of Greece sources on Monday refuted reports about the preliminary approval of 40 billion euros for the emergency liquidity assistance (ELA) mechanism for the country’s banks, saying that the amount to be requested from the ECB will be much smaller.