What will life be like for Greece after PEPP?

Greece ought to feel confident that it will comfortably overcome the absence of European Central Bank support, analysts tell Kathimerini, while noting that Frankfurt’s emergency bond-buying program (PEPP) looks set to continue for now.

Fabio Balboni, director and senior European economist at HSBC, tells Kathimerini that “when PEPP comes to an end that could be a bit of a blow for the sovereign bond markets as it would mean losing access to quantitative easing, for now. But first we don’t expect PEPP to end any time soon, reinvestments would continue beyond the life of PEPP anyway and Greece could also apply to the [European Stability Mechanism] credit facility which remains available to ensure continued access to ‘normal’ QE.”

“More importantly, losing QE access should not alter the fundamentals of the Greek economy and the investment case. As long as the fiscal deficit recovers – gradually – to pre-crisis levels and the government’s commitment to sustainable public finances remains intact, Greece should be able to comfortably overcome the absence of ECB support,” the HSBC official estimates.

Ioannis Sokos, director of Fixed Income Research at Deutsche Bank, further points out that “timing-wise, this will coincide with the EU Recovery Fund being at full speed, hence at that stage we should expect more fiscal than monetary support for the Greek economy. Let’s not forget that Greece is one of the member-states to have benefited the most regarding the EU recovery fund resources.

“Moreover, Greece will also benefit from PEPP reinvestments, which will keep taking place at least until the end of 2023 (although there are not many Greek government bond expiries till that point). Besides the Recovery Fund, Greece should still have most of its cash buffer intact by that point, which is going to be very helpful regarding investor confidence,” he explains.

“Progress on structural reforms combined with the effective and efficient use of the Recovery Fund resources will be key for Greece and for its credit rating. Once positive outlooks are reinstated, the market will front-run the subsequent upgrades as is usually the case, and this could generate the demand for GGBs that could replace the PEPP going forward,” Sokos says.