In a surprise move by the
European Central Bank {ECB} and the second in a row, after allowing Greece to
participate in the QE (Quantitative Easing) under the Pandemic Emergency Purchase Program,
PEEP), it decided to provide liquidity to the Greek Economy worth €10 billion.
Under the PEEP, the ECB
will, purchase private and public securities to counter the risks to the
monetary policy posed by the Pandemic of the coronavirus.
It will accept Greek
bonds as collateral by the Greek banks in exchange of liquidity and without
haircut or waiver despite the fact that Greece is not under investment grade.
This practically means that Greek banks having bonds in their portfolios, will
exchange the value of those bonds with an equivalent cash amount, which is
about €10 billion.
In 2018 Greek bonds were
not accepted as collateral by the Greek banks in exchange for liquidity because
they did not meet the credit classification set by the ECB.
The ECB decided to
reinstate the waiver for Greece on its bonds thereby accepting them as
collateral despite their low investment grade. It will also accept bonds by the
Greek banks in their portfolios in exchange for liquidity.
This decision by the ECB
is an indication that it increases its risk tolerance and accepting the bonds
without haircut (no reduction in the asset’s value).
April 8, 2020
Bill T. Alexandratos
