The head of the European Central Bank expressed cautious optimism on 23 March that Greece would be able to benefit from ECB money printing and get normal access to central bank funds, but urged Athens to honour its debts.
Mario Draghi made the remarks in the European Parliament as German Chancellor Angela Merkel met Greek Prime Minister Alexis Tsipras and Athens sought to unlock the cash that Greece needs to avoid crashing out of the euro.
Much of Greeces funding requirements and those of its banks are, in the meantime, being met by the ECB. Draghi signalled that there was scope to normalise the manner in which such funding was provided.
There will be time when we will be able to reinstate the waiver, well be able to do QE [Quantitative Easing] to Greece but several conditions have to be satisfied and they are not there yet. And we are confident they will be if this process of policy dialogue is being reconstructed, Draghi said.
The ECB no longer accepts Greek bonds as security in return for finance to Greek lenders, which makes them reliant on emergency short-term finance. Greece can also not benefit now from the ECBs QE money printing programme to buy bonds because the ECB has already bought too many Greek bonds as it stands.
Draghis conciliatory tone was tempered, however, by a stern warning for Athens.
Referring to the reform-for-aid programme that was all but scrapped by the new leftist Greek government, Draghi said Athens should focus on honouring its debts to restore the confidence of its creditors.
Greece and its international partners should now focus on setting the conditions for a successful conclusion of the review. I think thats the most important part and the government of Greece should commit to fully honour its debt obligations to all its creditors and to premise all future policies on this commitment, Draghi said.
Later speaking as president of the European Systemic Risk Board (ESRB), an EU body designed to give early warnings set up as one of Europes responses to the financial crisis, Draghi played down the threat of any short-term impact of Greeces troubles on the wider eurozone.
At the present point in time, also thanks to the QE, the OMT [Outright Monetary Transactions] measures but also to a general situation, which is much more resilient than it was a few years ago when the first Greek crisis materialised, we dont think there is a systemic risk now, Im speaking for the short term, Draghi said.
Draghi however added he didnt know exactly what the medium term consequences would be. He tried to calm depositors by saying Greek banks are financially sound.
Greek banks are this time in a much better state than they were on occasion of the last crisis. We have to look at Greek banks in two dimensions. The first is the solvency aspect. Greek banks are at the present, they are solvent, he said.
Greek banks, already hit hard by the countrys debt crisis, have suffered further in recent months as rising political tensions and fears of a Greek eurozone exit prompted savers to pull deposits, squeezing liquidity levels.
Deposit flight has left Greek banks dependent on emergency liquidity assistance (ELA) from the domestic central bank, funding which is costlier than direct borrowing from the European Central Bank and eats into their net interest margins.
