According to Reuters, ECB reduced the haircut it applies on bonds submitted by Greek banks as collateral to borrow funds in a move to boost access to liquidity.
Essentially, the deal to refinance the Greek banks means that the Eurosystem has indirectly upgraded Greek treasury bonds. That way, ECB demonstrates its support towards the Greek banking sector in a period of great stress and pressure on Greek bonds.
Despite reducing its borrowing by 2 billion euros in September (to 42.56 billion euros), Greek banks still rely on ECB’s funding for liquidity.
It was Draghi’s declaration in 2012 that he would do whatever it takes to save the euro that drew a line under the bloc’s debt crisis. He may now finally have to back words with actions.
The aim is to clinch a deal at a Dec. 18-19 European Union summit, EU officials say, but they acknowledge there are many obstacles and any agreement may fall short of what is required.
Germany’s central bank and Finance Minister are already critical of ECB’s plans to buy repackaged loans and covered bonds from banks to counter “lowflation.” Germany’s financial establishment is utterly opposed to quantitative easing.
French Finance Minister Michel Sapin, who went under fire for going back on France’s commitment to cut its deficit to 3% of national output in 2015 and demanded two more years, underlined the difficulties.
“Four issues are on the table for the Eurozone to return to durable growth: monetary policy – it’s done; then we governments have three issues to address: budget consolidation, structural reforms and investment,” he told reporters in Paris.
“Just because all these issues are being discussed together, does not mean it will give rise to a compromise or trade-offs. There has to be movement on all these points,” Sapin added.
The executive European Commission seems likely to send the French budget back to Paris for redrafting later this month, aggravating the political spat over economic policy.
The risk, a senior EU official said, is that a December deal is too minimal to revive growth or restore confidence.
Meanwhile, uncertainties over Greece seem likely to grow with conservative Prime Minister Antonis Samaras fighting for his coalition government’s survival by trying to declare an early end to its deeply unpopular EU/IMF bailout.
Greek 10-year government bond yields soared above 9% on Thursday – a level which Athens could not afford to rely on market finance – as investors fretted about the risk of a snap election next March that could bring the anti-bailout leftist SYRIZA party to power.
EU officials said Greece will need at least a European precautionary credit line subject to reform conditions even if it foregoes further assistance from the IMF, which is deeply unpopular in Athens.