Week in review: ECB backs Greece
The ECB has left rates unchanged at its meeting on Thursday, as widely expected, and increased emergency lending (ELA) to Greece by €900m, as Finance Ministers have reportedly agreed to provide a 7bn bridge-loan to Greece so that it can repay 3.5bn to the ECB on Monday. We expect the ECB will continue to support Greek banks through carefully managing ELA, which will allow banks to open on Monday, though capital controls remain in place. If Greece repays the ECB on Monday, this will also qualify it to benefit from the QE programme currently under way. Meanwhile, the Greek Parliament has voted for the package that PM Tsipras agreed to implement, despite strong internal opposition from Syriza and violent public protests outside the building – a comarison of the progammes of the last few weeks can be found here.
The issue of Greek debt sustainability remained sharply in focus, as the IMF released a new report recommending another restructuring package. At the press conference Mario Draghi also suggested that that might be necessary though the conditions that it can be done under the monetary union remain to be discussed. Debt restructuring will be discussed in the autumn once Greece starts implementing the new reforms, and probably only after the elections in several European countries.
Datawise, industrial production was up 1%mom in Portugal (+3.2%yoy) in May. In the quarter ending in May, IP was up 2.1%yoy, a relatively strong performance. In the Euro area, industrial production was -0.4%mom and up 1.6%yoy in May.
Week ahead: Euro area flash PMIs on Friday will give a heads up about economic activity in July. Expectations are for the composite indicator to ease to 53.9 after a very strong 54.3 number in June. A value above 50 indicates growth. Indications are that the ECB quantitative programme has started working to support a broader recovery and inflation.