Greek bonds will soon become eligible for the European Central Bank’s asset-purchase programme, paving the way for an easing of capital controls, and the gradual recovery of investor confidence, Finance Minister Euclid Tsakalotos said.
The continent’s most indebted state is currently excluded from the quantitative easing programme, while its lenders have lost access to regular financing lines, as a quarrel between Prime Minister Alexis Tsipras and Greece’s creditors in 2015 raised doubts about its solvency and place in the euro area. The flow of bailout loans keeping Greece afloat is slated to resume this month, after the government committed to additional austerity.
“QE could follow as soon as July’s maturing debt is paid,” Tsakalotos said in an interview, referring to a July 20 payment of notes held by the ECB. “I feel confident Greek debt will be eligible” by September, he said.
Asset purchases by the ECB that began in 2014 have morphed into a full-blown quantitative-easing programme that has since been extended, expanded and broadened. Officials are now committed to buying €80bn ($91bn) a month until at least next March. But before Greek debt can be included, the ECB must first grant a waiver, allowing the country’s banks to pledge government securities as collateral for regular financing. Greek bonds would normally be ineligible because because they aren’t rated investment grade.
The ECB has signalled it will act when it’s confident the new aid programme is on track. After the Governing Council met on June 2, President Mario Draghi said “it will require another policy meeting” but agreed that “there will be a decision leading to the reinstatement of the waiver.”
“Once you have QE, and depending on what your take is on the debt situation, you can take Grexit off the table,” Tsakalotos, a professor of economics at the University of Athens, said. “Then you have a straight runway for investors,” he said from his office overlooking the Greek capital’s main square of Syntagma across from Parliament.
Greek markets have rallied in the run up to the agreement, as the country secures enough cash to meet its debt payments this summer and repay some of its arrears to suppliers and vendors. The Athens Stock Exchange has gained about 17% in the three months through yesterday, trailing only Peru in delivering the best returns out of all major equity indexes tracked by Bloomberg. Greek bonds have delivered a 16% weighted return over the same period, more than any other sovereign tracked by Bloomberg’s World Bond Indexes.
Rising confidence, the payment of arrears and inclusion in the QE programme will offset the latest austerity measures, Tsakalotos said.
“Those factors should outbalance the recessionary drag,’’ said Tsakalotos, who moved into the post vacated by Yanis Varoufakis about a year ago. The office is largely unchanged, save for a few additions such as a crest of the PAOK soccer club from the city of Thessaloniki.
As liquidity is also restored, the government plans to ease the capital controls that were imposed after a run on deposits. “Restrictions on capital controls are already being eased and there is a road map toward full liberalization,” Tsakalotos said. “I’m hopeful that by autumn we’ll have some substantial change.”