Marie Diron comments ahead of ECB interest rate decision - 9 Feb - Ernst & Young - Ireland

Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast (EEF) comments on today's ECB interest rate decision

"The main news of the ECB press conference was not about the ECB but about Greece with President Draghi announcing that the Greek Prime Minister had told him that an agreement on the second bailout had been reached. This was essential to ensure that the Eurozone can manage an orderly default in Greece and stay in its current shape. It is huge relief that the negotiations have finally reached a conclusion.
 
"The ECB is cautiously optimistic about the impact of the three-year loans. It does point out that banks funding pressures have eased. The change in collateral rules announced today will also help many banks that were running out of eligible collateral. But the ECB also confirmed ongoing concerns about a credit crunch. We agree with this assessment. While the ECB’s actions have provided significant help to banks, the risk that businesses and households face restricted credit availability remains. It is essential that the ECB keeps a very proactive attitude and extends ongoing ample support to banks.
 
"The central bank draws a very clean line between support to banks and support to governments though. For instance, it is not yet clear whether the ECB will be ready to forego the profits it could make on the Greek government bonds that it holds. In the relatively more benign financial market environment that we have seen of late, this policy may be tenable. But if tensions re-emerge the ECB may need to step in, for instance by increasing the amounts of government bonds."