Greece strong even post-PEPP, analysts say

Greece’s anticipated exclusion from the European Central Bank’s regular quantitative easing (QE) program does not mean the country will stop enjoying Frankfurt’s support, as the likely application of an enhanced and extended reinvestment program for Greek bonds by the ECB and the 100 billion euros that will remain in the emergency QE program (PEPP) when it ends in March could be used to avoid any markets upsets.

Analysts point out to Kathimerini that instruments such as the Next Generation EU resources and Greece’s moves to diminish its national debt may prove even stronger than ECB support in the future.

Rating agencies will not consider an exclusion from the APP as a “credit negative” if “the ECB signals under forward guidance and parameters varying facilities’ right to intervene again in Greek markets via the PEPP or via another facility in case market conditions in Greece deteriorate in a manner inconsistent with the central bank’s monetary policy transmission,” says Dennis Shen, Sovereign and Public Sector director at Scope Ratings.

In any case, Greece needs to focus on attaining investment grade, but “any return to a more turbulent past of Greek politics after the 2023 elections and associated backsliding of reforms could easily compromise an outstanding path of progress,” warns Shen.

Societe Generale Head of Rates Strategy Adam Kurpiel says he does not think the ECB “would stop buying Greek bonds – even if they are not included in APP. The ECB may preserve the residual envelope of PEPP after March (around 100 billion euros under our baseline) and use part of it to buy Greek bonds if needed. They may also reinvest PEPP holdings flexibly – i.e skew the reinvestment flow toward Greek bonds if needed. Or they will implement another ‘backstop’ tool to prevent disorderly and unwarranted widening,” he tells Kathimerini.

DZ Bank analyst Sebastian Fellechner adds that the ECB reinvestment tool “should be highlighted in a way that markets get the signal that the ECB is ready to act in case of a severe spread widening,” also noting: “The NGEU funds are more significant for Greece’s growth outlook. The debt reduction measure is an important signal for the markets, as Greece gains reputation.”