Fra BNP Paribas
Greece: Deal removes worst-case outcome, but uncertainty persists The worst-case scenario of an immediate Grexit has been averted, thanks to eurozone leaders’ unanimous agreement on Monday. But uncertainty persists in the short term, as the Greek parliament has to formally approve the deal and to enact a number of “prior actions” by Wednesday, so that formal proceedings for a new programme can begin.
In the meantime, with EUR 3.5bn of the ECB’s GGB holdings due on 20 July, eurozone finance ministers have decided to set up a bridge financing task force for Greece at their meeting on Monday. Greece needs EUR 7bn in July and EUR 5bn in August, based on the institutions’ estimates.
According to press reports, a few options are under consideration to cover these short-term funding needs: (i) To release the ECB’s SMP profits to Greece. This amounts to EUR 1.9bn for 2014 and EUR 1.4bn for 2015 – not enough to cover the funding needs mentioned above. (ii) To use the left-over funds (EUR 13.2bn) in the European Financial Stability Mechanism (EFSM) – a fund that was created in 2010 and used in the Irish and Portuguese bailouts.
Bonds issued by the European Commission to raise the funds, however, are backed by the EU budget, so they can only be used with the consent of all 28 EU countries. Note that the UK refused the use of the EFSM in the Greek bailout in 2011 and could take a similar stance this time around. (iii) To give eurozone bilateral loans to Greece, similar to the first bailout programme. Such loans could later be deducted from the loans from the ESM later on, according to press reports.
(iv) Greece could be allowed to issue more T-bills, with the ECB raising the ceiling on the amount of Greek T-bills it accepts as collateral in its refinancing operations with Greek banks. This would then effectively allow the banks to “finance” the government. None of these options are easy to agree at this point in time. But, as long as Greece complies with the prior actions by Wednesday, short-term financing, potentially through a combination of the above options, would be extended to avoid default on 20 July, in our view. ECB:
Bank lending survey should reflect improved investment climate The European Central Bank’s last bank lending survey published in April 2015 pointed to further improvements in the supply side of the loan market, with lending standards easing, particularlyfor corporates. While corporate loan demand improved on aggregate, there was some disappointment that demand for funds for fixed investment contracted (Chart 1). We expect to see a rebound for Q2, however, as banks reported considerable optimism about the level of future demand for investment funds in the April survey, even though current demand shrank. Lending standards should also continue to ease back toward historical norms.
