MNI SOURCES: ECB To Continue Adding Greek Bonds Post-PEPP

The European Central Bank will find a way to continue to add to its stock of Greek debt following the conclusion of its pandemic bond purchasing programme early next year, Eurosystem and official European finance sources told MNI.

While there is little appetite to extend the PEPP beyond March 2022, there is broad consensus on the Governing Council regarding the need for measures to avoid a hard landing for the eurozone, sources said. Greece's sovereign bonds are currently excluded from the ECB's public asset purchase programme because they are sub-investment grade.

While ECB Chief Economist Philip Lane has pointed out that PEPP reinvestment will ensure a significant ECB presence in the Greek bond market until at least the end of 2023, some some officials told MNI that Greece could also be included in the APP, despite its credit rating.

"I don't think that there would be lots of disagreement to include Greece again. To be frank, it wouldn't matter that much. So I don't think they will say no, that's a no-go," one said.

Another possibility would be that Greece would benefit from the creation of a "sleeper" PEPP facility, only to be activated at times of market stress. The proposal has circulated as a way of extending additional stimulus at a time when rising inflation has hardened the resolve of more hawkish national central banks to resist any permanent changes to the ECB's monetary toolbox at a key meeting in December.

GREEK CONFIDENCE

There is a "high likelihood of a PEPP successor," one eurozone finance official said, adding that this would be expected to include a waiver permitting the purchase of Greek debt.

Another Eurosystem official, though, said more support might be in order for Greece.

"Personally, I see Greece being adopted into the APP fold when the PEPP ends," the source said. "The idea of Greece being 'underpinned' by a so-called sleeper PEPP is a good idea in principle and, if such a plan was put in place, that would undoubtedly be a plus. However, I don't think -- if the sleeper is even discussed or agreed -- it would be sufficient."

Greek officials have also expressed confidence that the ECB will act in their favour, with Bank of Greece Governor Yannis Stournaras saying that the ECB will continue to buy Greek bonds to ensure the even transmission of monetary policy throughout the eurozone.

An ECB spokesperson declined to comment on the matter.