The ECB plans to accept junk bonds from crisis-ridden countries, provided that they were first subjected to an economic monitoring program. The announcement, which came from the head of the European Central Bank, Mario Draghi, has reportedly astonished Greek lawmakers. The statement has been interpreted as the ECB’s intention to continue the strict austerity measures and fiscal control even after the technical conclusion of the memorandum period. The ECB apparently has doubts regarding the government’s commitment to Greece’s exit from the memorandum and ability to meet troika demands in the coming months. The statement also sends a message to the main opposition party, SYRIZA: if they plan to count on Europe’s financial assistance, they must consent to a strict policy program. The Samaras government has clarified that this should not be perceived as a new memorandum. Instead, it should be seen as a clarification of the obligation all European countries have towards certain financial guidelines. There has been no official response from SYRIZA spokesmen. Party officials will likely rule out the possibility of agreeing to such measures. According to Bloomberg, the Greek Prime Minister’s efforts to bring the country out of crisis is impeded by Draghi’s plans to buy Greek bonds. Beginning mid-month, the European Central Bank will buy bundles of loans in an attempt to jump-start a languishing eurozone economy. Draghi has declared that the ECB’s intention is to pump money into the economy by expanding the ECB’s balance sheet back to 2012 levels. This would mean distributing hundreds of billions of euros – an enormous task. “As all our measures work their way through to the economy they will contribute to a return of inflation rates to levels closer to our aim,” Draghi told the media. Market speculations that the ECB will launch a broad-based quantitative easing (QE) scheme have soared in recent months as the bloc teeters on the edge of deflation. The report notes that the conditions set by Draghi to buy ABS bonds creates an additional barrier for Samaras, who has already had a difficult time convincing investors that Greece is economically stable. Antreas Koutras, Managing OF of SteppenWolf Capital LLC., told Bloomberg that: “Draghi’s statement, the ‘no program – no buying bonds’ is an indirect warning to the Greek Prime Minister against premature exit from the program.” Koutras added that “the final conclusion is that the Greek banks must find buyers for the bonds, as ECB will not buy them by itself. Although ECB has lowered its standards, the Greek banks will not have much benefit”. According to Bloomberg, Greek banks hold nearly 20 million dollars in covered bonds.
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