Recovery fund will replace the PEPP boost

Greece shouldn’t worry about the European Central Bank’s termination of its extraordinary bond-purchase program (PEPP) next March, as the reforms it has pledged to continue with the support of the Next Generation EU recovery fund should suffice to assist its market presence, leading international analysts on Greece tell Kathimerini.

ING Senior Rates Strategist Antoine Bouvet says that when the PEPP is over, overall eurozone bond purchases under the ECB’s original quantitative easing (QE) program will be low, at 20 billion euros per month. 

That means – although Greek demand from the European Stability Mechanism for a credit line would be a strong signal for Greek bonds – support will be quite low in liquidity terms. On the contrary, Bouvet tells Kathimerini, the amount and duration of the support from the NGEU will be enough to substitute the benefits from the PEPP.

The introduction of reforms with the help of European resources will be crucial, according to Spyridoula Tzima, assistant vice president of Global Sovereign Ratings at DBRS Morningstar: “We think that there has been progress in reform implementation and improvement in the business environment. Having said that, the NGEU funds offer an opportunity for Greece to strengthen its economic fundamentals by recovering from the crisis and rebalancing its public finances.”

Marko Mrsnik, European Sovereign Ratings director at Standard & Poor’s, which upgraded Greece’s rating one notch a week ago, agrees: “Greece is expected to receive a boost in economic growth and to reduce its budget deficit after the impact of the pandemic subsides,” he tells Kathimerini, as his agency has also upgraded its outlook for Greece to “positive.”

Reforms and European Union funds will do the trick, says Steffen Dyck, Moody’s leading sovereign analyst for Greece: “We expect economic performance to recover strongly from the second half of 2021 and into 2022,” he notes to Kathimerini.

He adds that “sizable inflows of EU funds under the Recovery and Resilience Facility (RRF) together with expected increases in private investment should support this recovery and also Greece’s longer-term growth potential beyond 2022.”