Looking for more ECB liquidity

Officials in Athens, Brussels and Frankfurt are shortly expected to discuss ways for the European Central Bank to continue to provide Greek banks with plenty of liquidity at low rates.

The talks will have to take place soon, because the ECB’s €1.85 trillion pandemic emergency purchase program (PEPP), initiated in March 2020 with €750 billion and expanded twice since, is set to expire next March.

The PEPP involves the ECB’s purchase of private and public sector securities. European officials believe that the ECB’s continued support for Greece will be crucial in determining the timeline for Greece’s exiting the enhanced surveillance status to which it has been subjected since the expiration of the bailout deals it signed with its creditors.

Since the ECB believes that enhanced surveillance is necessary as long as Greek treasuries are graded below investment grade, a revision of its stance would be a significant signal, the EU officials said.

Bank of Greece Governor Yannis Stournaras is pushing hard for Greece to be included in the ECB’s regular liquidity provision schemes even if its debt is not yet investment grade, a level which the government believes it will attain in the first half of 2023.

There is no doubt that Athens will try to remain under the ECB’s protection, which, in effect, allows its economy to function.

Enhanced surveillance was set to expire with the end of payments back to Greece of other central banks’ profits from Greek assets purchases under the Agreement on Net Financial Assets (ANFA) and the Securities Markets Program (SMP). This was supposed to end in June 2022 but it is far from certain it will. Greece did not receive a payment in 2019, partly as a result of holding the national election that year, and it is not certain when that payment will be received. In view of that, the European Commission has the power to extend Greece’s enhanced surveillance status.

Pending at this moment are three of the eight installments of the ANFA/SMP repayments decided in June 2018. Greece can expect to get €2.25 billion from those. Besides the still unpaid 2019 installment, there are two payments due in December 2021 and June 2022.