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The possibility of buying bonds above 45,000 million euros but also an environment of low interest rates with the possibility of reducing them even more are the two gifts that Christine Lagarde made yesterday in Greece with the expansion of the Emergency Pandemic Purchase Program ( PEPP).
Responding yesterday to a question on whether Greece can leave the program because it is not investment grade, the director of the Euro Central Bank clarified that there is no such problem: “Greece will not be excluded from the PEPP because it does not have” invertible “bonds.” It does not exist. such a thing, “said Mrs. Lagarde.
Along with the expansion of the 1.35 trillion markets. to 1.85 trillion. euro and the duration of the program until March 2022, offers Greece two things: the first is based on the weighted share with which the ECB buys Greek bonds from the secondary market, the ceiling increases from 33.3 billion. to 45,200 million euros, providing the same liquidity to the financial system.
The second gift especially for Greece is that the extension of the program until -at least- until March 2022 gives our country time. At this time, with the appropriate manipulations, Greece can obtain the necessary updates from the rating agencies, in order to guarantee the so-called “investment grade”. Once this is done, Greece can participate in the quantitative easing that will follow the PEPP at some point until the end of 2022, keeping interest rates low. From there, Greek commercial banks will be able to use Greek government bonds as collateral without the deep discounts that are currently accepted by the ECB.
Low to negative interest rates until 2023
A third major gift for Greece is Lagarde’s early announcement to keep interest rates at the current lows “or even lower,” as he repeated significantly three times in his speech, noting that the ECB will continue to adjust its tools, with inflation target close to 2%.
As regards Greece, the guarantee of a low interest rate environment for at least 2 years is more than valuable both for banks and for the real economy, which after the 10-year economic crisis was forced to enter the crisis caused by the coronavirus.
Gradually, as banks’ lending rates decline, this will pass to the real economy.
