FRANKFURT – The European Central Bank, which plans to buy up junk bonds from Greece and Cyprus to free liquidity to banks and speed business lending, will put tight controls on the plan.
ECB Governor Mario Draghi said that economies with a low credit rating will have their bank bonds accepted only through a program that will include economic inspections, which may well pose a problem for Greece’s political parties who are trying to wean themselves off two bailouts from international lenders, including the ECB, that came with harsh austerity measures.
Greek bank sources told Kathimerini that while the new program will not be the same as the bailout monitoring that the country has been subject to since May 2010, an agreement between Athens and the European Union will be necessary to keep an eye on the progress being made toward macroeconomic targets and the course of the necessary structural reforms.
“It is absolutely reasonable that the ECB should ask for a program before providing liquidity to Greece, otherwise there would be serious legal problems for the central bankers of the Eurozone,” the unidentified source said.
That demand will be tough on Prime Minister Antonis Samaras’ ruling New Democracy Conservatives and his partner the PASOK Socialists who are being battered in the polls for backing pay cuts, tax hikes, slashed pensions and worker firings.
ECB officials have been repeating that the existence of a program (or a high credit rating) would be a condition for the country’s unhindered access to Frankfurt’s cash mechanisms for some months now.
Greece’s credit rating is currently three notches below the minimum accepted by the ECB. Local banks have drawn some 45 billion euros to support their cash flow and cover the gap between deposits and loans.