Macro roundup: ECB special

A long-overdue look at how the whole Greek bond-buying thing is going

The European Central Bank this week released its breakdown of bond holdings under the pandemic emergency purchase programme, showing that a year after its launch, the central bank now owns just under 30 percent of Greek government bonds.

That’s getting close to the symbolically significant 33 percent mark. In fact, if you looked at the ECB’s end-March holdings as a proportion of the total amount of Greek bonds at the end of last year — before the government issued another 6 billion euros of securities in the first quarter — then the ratio would rise to 32.8 percent.1

That one-third level is symbolic because it corresponds to the issuer limits the ECB placed under the public sector purchase programme — otherwise known as the vanilla, pre-pandemic quantitative easing — for which Greece was ineligible.

Of course, one of the things that made the PEPP such a big deal in the first place for Europe’s policy response to the crisis is precisely that no such issuer limits are in place. But it’s one thing for the ECB to have the tools at its disposal, another to actually use them.

As pointed out by Frederik Ducrozet, one of the top ECB-watchers to follow on Twitter if that’s your bag, the central bank has, since the summer, been spurning the flexibility it has to deviate from its capital key for purchases — another of the important weapons in the PEPP armoury.

It seems highly implausible that purchases of Greek bonds will come to a sudden stop once the 33 percent level is reached. But it’s a psychological barrier nonetheless — and the people responsible for day-to-day implementation of the central bank’s market operations would consider any decision to breach it as above their pay grade.2

And it’s a decision that will have to be run up the chain of command soon. Since July, monthly PEPP purchases of Greek government bonds have been averaging 1.5 billion euros. Without the government issuing more of them, the 33 percent level will be breached next month if purchases hold steady at that rate.

All in all, this is an added factor in the slowdown of central bank purchases of Greek bonds observed during the summer. It’s also another reminder of how important it is for the country’s debt management agency to keep tapping bond markets now, while this low-rate window is open.


Before you go-go

Bonus chart: the government’s issue of 2.5 billion euros of 30-year bonds last month also caused a notable shift in the weighted average maturity of the PEPP-eligible universe of Greek securities.


Other data

  • The EU-harmonized consumer price index dropped 2 percent in March after decreasing 1.9 percent in February. There may be a little inflation bump elsewhere in the eurozone, but not here.

  • The industrial production index rose 4.4 percent in February, following a rise of 3.5 percent in January. The index was led higher by electricity supply, which increased by 12.4 percent, followed by a 2.7 percent increase in manufacturing.


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Next week’s key data

Monday:
  • January building activity (Elstat)

Thursday:
  • January unemployment (Elstat)

  • Jan-March central government preliminary budget execution (Finance Ministry)

Friday:
  • February business revenue (Elstat)


Elsewhere on the web …

… will be back next week.


This week in history

Well, next week actually. But I was reminded of it this week.


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1

Yes, yes, I know technically they’re Eurosystem holdings, but whatever. The national central banks are effectively local branches of the ECB.

2

I haven’t looked into how common this would be compared with other countries. But Greece isn’t other countries.