European Central Bank President Mario Draghi effectively put an end to a debate about the inclusion of Greek bonds in the ECB’s asset-purchase program, saying commitments offered by creditors earlier this month still don’t provide sufficient clarity on the country’s future debt path.
The debt measures Greece adopted are “still insufficient to properly assess both their quantitative effect and the timing of their impact on the dynamics of Greece’s public debt,” Draghi wrote in a letter to Greek European Parliament member Nikolaos Chountis published on Monday. “Until sufficient detail has been provided on the debt measures, serious concerns persist regarding the sustainability of Greece’s public debt.”
The ECB has signaled that lack of clarity over debt relief would hinder its assessment of the sustainability of Greek debt, which is a pre-condition for considering the purchase of the country’s bonds under quantitative easing, currently scheduled to run until the end of 2017. Greece’s euro-area creditors agreed to release 8.5 billion euros ($9.5 billion) in new loans on June 15 but postponed until mid-2018 a binding decision on what measures they will provide to ease the country’s burden.
“The Governing Council will decide independently on whether and how to conduct purchases of Greek sovereign debt securities,” Draghi wrote in the letter. “The program has not been designed to target yield developments in individual euro-area countries.”
The government of Prime Minister Alexis Tsipras is counting on quantitative easing to aid Greece’s return to international debt markets. With economists seeing bond purchases being gradually tapered throughout 2018, the program will probably be nearing its conclusion when debt-relief details are announced.
“On the borrowing rate at which Greece could tap the markets without aggravating its debt prospects, kindly note that this does not depend only on the future interest rate,” Draghi wrote. “An improvement in growth prospects for the Greek economy would create the capacity to absorb a higher borrowing rate without having any detrimental effects on debt sustainability.”