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28/09/2016

Greece casts shadow as ECB money printing buoys eurozone

Euro & Finance

Greece casts shadow as ECB money printing buoys eurozone

Mario Draghi. European Parliament, 2011. [EP/Flickr]

European Central Bank policymakers may sanction possible further emergency funding for Greece’s banks on Wednesday (15 April), amid the first clear signs that the eurozone economy is picking up.

With an ECB survey showing banks expecting the strongest demand for company loans in over a decade, President Mario Draghi will be able to claim an early success for the bank’s newly launched 60 billion euros-a-month money printing scheme.

The ECB’s quarterly Bank Lending Survey, which polls more than 140 top banks, showed that lending standards were also gradually being loosened. The process was expected to remain slow, although there are bright spots, such as Italy.

A net 39 percent of banks — the highest since the ECB started collecting the data in 2003 — foresee stronger demand for loans from companies in the coming three months. 29 percent expected it to rise for house purchases.

Athens’ dark spot

The ECB’s borrowing rates are all but certain to be held at record lows when policymakers meet, but continued wrangling between Greece and the eurozone over reforms for aid is casting uncertainty over the 19-country currency bloc.

Nonetheless, a 1 trillion-euro-plus money printing scheme to buy chiefly government bonds is underpinning confidence and some predict that Draghi will underscore his commitment to quantitative easing on Wednesday.

“We expect Draghi will confirm that the full implementation of the (QE) programme will be needed despite the recent strong data and that they are not even pondering any changes,” said Dirk Schumacher, an economist at Goldman Sachs.

Time is running out, however, for Athens to improve a package of reforms required for the release of euro zone loans that it needs to stay afloat.

Draghi may reveal whether the ECB’s decision-making Governing Council extended the limit on emergency liquidity that can be drawn by Greek banks. This has been rising as savers, worried about the country’s prospects, withdraw deposits.

Were Greece ultimately to tumble out of the euro, it would deal a blow to the credibility of the currency union. Athens was first bailed out almost five years ago by the eurozone, with another aid deal in 2012, but its future remains uncertain.

Draghi is likely to address the euro zone’s improving prospects. In its World Economic Outlook on Tuesday, the International Monetary Fund raised growth expectations for all the major economies in the bloc, especially Spain.

The ECB’s actions are creating fertile conditions for growth, with the euro at a 12-year low buoying exporters and borrowing in many countries cheaper than ever.

It has already prompted a dramatic rise in the value of bonds and investors are now wondering whether it could become too costly for the ECB to buy in top rated countries such as Germany.

Draghi will hold a press conference on Wednesday, before he travels to Washington to join finance ministers and central bankers from the Group of 20 top economies at the International Monetary Fund’s Spring meeting.