Bloomberg News - Greek Ambition to Exit Bailout Meets Draghi Roadblock

Photographer: Kostas Tsironis

Greek Prime Minister Antonis Samaras.

Antonis Samaras’s ambition to driveGreece out of its rescue program is running into a roadblock.

The country’s prime minister might be thwarted by conditions for the European Central Bank’s asset-purchase program, as detailed by President Mario Draghi. Policy makers meeting in Naples yesterday were resolute that Greece should stay under economic surveillance to be eligible, according to a euro-zone central-bank official involved in the negotiations. The official asked not to be named, as talks are private.

Draghi pledged to buy asset-backed securities and covered bonds for at least two years, and said that Greece and Cyprus must be subject to bailout programs to ensure their inclusion because their credit ratings are below investment grade. That creates a further hurdle for Samaras beyond convincing investors that the country is good for its debts.

“This statement, ‘no program, no purchases’ from Draghi, is a direct warning to Samaras against an early exit from the bailout” said Andreas Koutras, an investment manager at SteppenWolf Capital LLC. “Bottom line is that Greek banks should find more buyers for these securities, as the ECB won’t buy new issues on its own. Even though the ECB has lowered its standards, Greek banks won’t benefit as much.”

The four largest Greek lenders held about $20 billion of covered bonds, according to Bloomberg data, representing almost 5 percent of the industry’s liabilities, Bloomberg Intelligence analysts Tomasz Noetzel and Kapilan Theiventhirampillai wrote in a note yesterday.

Increased Liquidity

Citigroup Inc. (C) said in a note that Greece’s banks and the debt-stricken country’s economy would benefit from ECB’s purchases. Liquidity in the Greek system would improve, which might lead to more lending for the economy, Citigroup said.

These potential benefits may not be realized if Greece exits its rescue program. Draghi said yesterday that he wants to be “as inclusive as possible, but with prudence” as he set out the caveat that the ECB will buy securities in countries with credit ratings below BBB- only if they are subject to bailout conditions.

While the ECB wants Greece to remain under some form of surveillance, the country’s government may choose what kind of supervision that will be, the euro-zone central bank official said.

Emboldened by the country’s return to the bond market after a four-year exile, Samaras has said that Greece will not ask for a new bailout once the current euro-area backed program runs out in December. He also said Greece may forgo remaining disbursements from the International Monetary Fund in 2015 and 2016.

The bailout loans, which have kept Greece afloat since 2010, were attached to strict conditions of belt tightening that triggered a social backlash and exacerbated a recession that left more than a quarter of the workforce without a job.

To contact the reporter on this story: Nikos Chrysoloras in Athens atnchrysoloras@bloomberg.net