Looking for Greek hints from ECB

April 15, 2015

European Central Bank President Draghi and Vice President Constancio leave after addressing an ECB news conferenc in FrankfurtIt’s European Central Bank day and with quantitative easing now well underway any morsels it hands out on its approach to Greece are likely to capture the headlines.

All sides seem to agree that Athens needs to produce an economic reform plan for euro zone finance ministers to ratify at a meeting in Riga late next week. Failure to do so really will leave it teetering on the edge.

The ECB has been keeping Greek banks afloat by incrementally extending the amount of Emergency Lending Assistance available to them and raised the ceiling again on Tuesday by 800 million euros. Sources said that left only four billion euros in total to be tapped, keeping pressure on Athens to strike a deal with its creditors.

The euro central bank has baulked at allowing Greece to raise more short-term debt on the markets, fearing that since Greek banks are just about the only buyers of treasury bills they will present  them back to the Greek central bank as collateral for more funds – creating a sovereign/banking doom loop.

Greece will try and sell 625 million euros of 3-month T-bills to roll over a maturing issue today, something it has managed to do so far to keep the show on the road.

Should a deal not be reached in Riga, the ECB may soon face a titanic decision about whether to declare Greek banks insolvent, at which point it would have to cut them off.

The broader euro zone bond market has responded to ECB buying by driving yields down towards zero and beyond in some cases. The ECB has said it won’t buy paper yielding less than its deposit rate of -0.2 percent and some analysts think it could soon run short of bonds to buy. ECB President Mario Draghi insists not.

He has also dismissed talk of “tapering” the bond-buying programme. With recent data pointing to a euro zone economic upturn, some traders are already asking when and how the ECB might start scaling down its stimulus.

German final figures, just out, confirmed inflation in Europe’s largest economy edged back into positive territory at 0.1 percent in March. Berlin will sell up to four billion euros of 10-year debt later, an auction which could see its benchmark yield hit a record low.

The German economy ministry says the strong economic growth seen at the end of 2014 will not be replicated in the first quarter of 2015 but that the upturn will continue at a moderate rate.

Poland’s central bank also meets and is seen holding interest rates at a record low 1.5 percent well into 2016, following a half-point cut in March. That will put the focus on anything the bank says about the zloty which is rising as the ECB’s QE programme pushes the euro down. Some Polish officials feel it is too strong, and needs to be weakened.

The French government is set to spell out how it will plug a 3-4 billion euro gap in the 2015 budget in order to keep avoiding EU sanctions on its fiscal slippages. It will also unveil its structural deficit targets for 2016-2017, which could be a source of friction with its EU peers and the European Commission after Budget Minister Christian Eckert said the effort on the structural deficit would be smaller than asked for by the EU in order to preserve growth.

The Swedish government has just unveiled its annual budget which predicts the economy will grow faster than previously expected this year, by 2.6 percent. The government outlined new spending of about $900 million) on welfare, schools and job creation in 2015. With growth robust it looks slightly odd that the central bank is so concerned about deflation.

Today is the third and final day of voting in the first Sudanese presidential and parliamentary elections since Sudan saw its south secede in 2011, losing a third of its land and nearly all of its oil production. President Omar Hassan al-Bashir is on course to extend his quarter century in power.

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