Greek’s ailing banks will be given access to the European Central Bank’s refinancing program. The move brings Greece closer to financial normalization, a gift for its compliance in passing tough austerity measures.
Cash-strapped Greek banks will be able to borrow cheap money from the ECB starting June 29, the ECB’s Governing Council decided on Wednesday.
This requires that the ECB waives its minimum rating requirement, allowing Greek banks to post government-guaranteed debt – even though it is rated as “junk” – as collateral in exchange for ECB funding.
Greek brokerage Euroxx said the move “will be essential for the reduction of Greek banks’ funding costs, which along with the gradual easing of capital controls should also help the all-important return of deposits into the system.”
Greek banks were barred from the refinancing program more than a year ago, amidst acrimonious negotiations between Greece’s creditors, who demanded the implementation of strict austerity measures in exchange for bailout funds, and the debt-ridden Greek government, led by the newly-in-power and anti-austerity Syriza party.
Since then, the banks were kept afloat via an Emergency Liquidity Assistance (ELA) program whose loans were much more expensive than those of the ECB, whose rates are currently at zero percent.
The ECB’s decision is an acknowledgement of the Greek government’s compliance in implementing these reforms. Alexis Tsipras’ government passed a number of controversial austerity measures last month in order to receive a new tranche of bailout funds.
In a statement on Wednesday, the ECB said it “expects continued compliance” in implementing the reforms. It also said it may consider “at a later stage” buying Greek government bonds as part of its ambitious quantitative easing program.
This would mark an important step on the way towards renormalizing Greece’s hobbled financial system, lowering the high risk attached to Greek sovereign bonds and bringing it closer to restored access to capital markets.
The Greek economy has suffered since entering into the first of three bailout agreements in 2010 with the so-called Troika, consisting of the ECB, the European Commission and the International Monetary Fund.
It’s GDP has contracted significantly and it’s jobless rate hovers around 25 percent, despite a series of privatizations and cuts to the public purse, for example with health care and pensions.
Nonetheless, European Commission President Jean-Claude Juncker, on a visit to Athens on Tuesday, said that he was “absolutely content” with the path the Greece was on as part of the programs.
jtm/uhe (AFP, Reuters)