The European Central Bank is unlikely to include Greek bonds in its asset-purchase program for the foreseeable future, a person familiar with the matter said, as European creditors aren’t prepared to offer substantially easier repayment terms on bailout loans to improve the nation’s debt outlook.
Euro-area finance ministers will meet in Luxembourg on June 15 to discuss debt-relief measures that the ECB has said are needed before it will consider purchasing Greek bonds. The so-called Eurogroup is expected to complete a review of Athens’s rescue program that would allow for the disbursement of at least 7.4 billion euros ($8.3 billion) in aid needed for a similar amount of bond repayments in July.
An agreement among the ministers will likely allow the International Monetary Fund — whose participation in the rescue program is a requirement for many nations — to commit in principle to a conditional loan, said the person, who asked not to be named because the discussions are private. But the extent and wording of debt-relief commitments probably won’t convince the Governing Council of the ECB to buy Greek bonds.
And while the government of Prime Minister Alexis Tsipras is relying on quantitative easing to aid Greece’s return to the public debt market, the ECB won’t factor fiscal consequences into its policy-making decisions and excessive emphasis on QE inclusion would be misguided, according to the person.
An ECB spokesperson referred to recent comments by ECB Executive Board member Benoit Coeure and ECB President Mario Draghi on the institution’s approach toward inclusion of Greece in QE.
The ECB’s quantitative easing is scheduled to continue until December 2017, with economists saying purchases will be gradually tapered throughout 2018. This would leave little time for purchases of Greek bonds before the program’s end.
Even as inclusion in QE remains in doubt, Greek bonds have outperformed all European sovereigns this year, as the prospect of a deal with creditors on the disbursement of more aid has reduced the risk of default. Yields on Greek notes due in 2019 fell 6 basis points to 5.08 percent at 11:50 a.m in Athens on Tuesday. Those securities traded as high as 11.7 percent a year ago.
Meanwhile, France, which is trying to bridge differences on the debt issue, has proposed automatically reducing loan repayments when Greece misses growth targets, according to two people with knowledge of the talks. European officials see the proposal as a step in the right direction but doubt it will be enough to convince the ECB to include Greece in its bond purchase program if the IMF maintains its position that the country’s debt is unsustainable. Other euro-area member states so far have opposed France’s proposal, the people said.
French Finance Minister Bruno Le Maire, after meeting with his Greek counterpart Euclid Tsakalotos in Athens on Monday, said they were doing their best to reach an accord with the other countries on Greece and said they weren’t far from achieving a deal. Some mention of the French plan may be included in the Eurogroup statement on Thursday, though technicalities will be left to be worked out later, according to one of the officials familiar with the talks.
“It’s time to move with the next disbursement, because this uncertainty, which is dragging on, is already starting to negatively affect the Greek economy and there is no objective basis for this,” Valdis Dombrovskis, the European Union commissioner in charge of financial services policy, said last week. “It’s important to conclude the second review and to move ahead with the next disbursement.”