European Central Bank (ECB) president Mario Draghi revealed that he will push for the ECB to buy “junk”-reated Greek and Cypriot loans in an effort to prevent economic stagnation in the Eurozone, the Financial Times (FT) reported.
Draghi plans to elaborate on the details sometime this week.
The plan would allow ECB to purchase some of the safer forms of asset-backed securities (ABS), known as “senior tranches,” FT reported.
The result is expected to improve liquidity for Greek and Cypriot banks, and it “would have a significant positive impact for the Greek banking system and the Greek economy,” a senior banker told FT.
This relaxation of monetary policy is likely to face stiff opposition in Germany, FT noted, exacerbating already chilly relations between Germany and the ECB.
Bundesbank president Jens Weidmann and German Finance Minister Wolfgang Schäuble have already indicated their opposition, FT reported.
While Germany is the Eurozone’s strongest economy, Greece’s and Cyprus’ are among the poorest performers. As FT summarized, Standard & Poor’s rates Greece and Cyprus as single B sovereigns – a sub-investment grade rating. Fitch rates Greece as single B, and Cyprus as single B-minus. Moody’s rates Greece Caa1 and Cyprus as Caa3.