Analyse fra BNP Paribas:
Greece: Waiting for the referendum Greeks are due to go to the polls on Sunday (after the time of publication) to decide whether or not to accept the most recent financing proposal by the country’s creditors. The government claims the referendum is merely a vote on austerity. For the opposition and some EU officials, it is a proxy vote on eurozone membership.
Either way, it is a close call. A Yes vote would probably oust the government, paving the way for a bailout deal. Market uncertainty, though declining, would persist, but the risk of a euro exit would fall significantly. A No vote would not automatically mean a Greek euro exit, but it would make it very hard for it to stay in without a major change in negotiating stance by the Greek government or its creditors.
ECB: Ready to act Comments by ECB Vice President Victor Constancio, that the ECB has the tools to mitigate any negative impact of adverse news from Greece, are the latest in a series of remarks by central bankers aimed at pre-empting any significant pickup in Greece-related market volatility. It is clear that the ECB is determined to avoid a Greek-induced tightening of monetary conditions that might jeopardise its efforts to achieve price stability.
To this end, the bank will use both existing and new instruments, as highlighted by ECB Governing Council member Benoît Coeuré earlier in the week. The most obvious first line of defence is an increase in the pace of asset purchases under the ECB’s bond-buying programme. In a risk-off scenario, in which Bunds rally and peripheral spreads widen, however, this would not necessarily be the most effective response.
The ECB could, therefore, consider a temporary shift in the allocation of purchases by country, increasing the weight of peripheral bonds, on the grounds they are most exposed to Greek fallout.
Mr Coeuré and Peter Praet have underlined the importance of the European Court of Justice ruling in favour of the ECB’s outright monetary transactions (OMT). By confirming their legality, the Court recognised the ECB’s full discretion over the instruments it uses to meet its mandate. OMT buying, however, is not necessarily useful in the current circumstances; activation requires a request from a country and is subject to conditions.
Still, the reference to this instrument is important because a key aspect of the OMT is that the ECB can buy the assets of a specific country. This suggests, in our view, a willingness to revisit the allocation (albeit temporarily) of the assets bought under QE. We cannot rule out this being done with the use of a new facility.
Another route the ECB could pursue is to expand the assets it purchases to include corporate bonds. We know corporate bonds were among the options the ECB considered for QE. A lack of depth and the heterogeneity of assets were cited as reasons to go for sovereigns instead. However, these impediments do not preclude non-financial corporate bond buying as a complement to the current programme. Indeed, the ECB this week expanded the list of eligible assets under the PSPP to include a limited number of corporates.
A potentially more extreme move could be to change the allocation of risk for assets purchased. Currently, only 20% of the risk lies with the ECB; the remainder resides with the national central banks. The ECB might decide to make any additional purchases subject to loss sharing. This would demonstrate the full commitment of the ECB to maintaining the smooth functioning of the eurozone and highlight that it views the position of other peripheral countries as very different to that of Greece.
This would probably not be an initial response, but could come later if further action were needed to calm markets, loosen financial conditions and restore confidence. When might the ECB act? The recent rhetoric and actions suggest the ECB intends to move to fend off any potential market volatility from the very start. In doing so, it will probably not only limit the action needed, but also prevent any potential market knock-on effects on the negotiations that are likely to follow the Greek referendum.
In the event of a significant negative market reaction to the Greek referendum leading to an unwanted tightening of monetary conditions in the eurozone, therefore, we would expect the ECB to act as soon as Monday.
