Draghi Rejects Accusation That ECB Is Blackmailing Greece

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European Central Bank President Mario Draghi arrives to deliver introductory remarks in front of the Economic and Monetary Affairs Committee at the European Parliament, in Brussels, on March 23, 2015.

European Central Bank President Mario Draghi arrives to deliver introductory remarks in front of the Economic and Monetary Affairs Committee at the European Parliament, in Brussels, on March 23, 2015.

Photographer: Emmanuel Dunand/AFP via Getty Images

Mario Draghi pushed back against an accusation that the European Central Bank is blackmailing Greece and compounding the pressure on the country.

“Let me disagree with you about everything you said,” Draghi told Portuguese lawmaker Marisa Matias during his regular hearing at the European Parliament in Brussels. He was responding to a question about the withdrawal of a waiver that allowed the ECB to accept the country’s junk-rated debt as collateral.

“It’s bit rich when you look at our exposure to Greece” which totals 104 billion euros ($113.8 billion), Draghi says. “What sort of blackmail is this? We haven’t created any rule for Greece, rules were in place and they’ve been applied.”

The exchange came amid signs that Greece could run out of money by early next month. Prime Minister Alexis Tsipras is meeting today with German Chancellor Angela Merkel to discuss reform commitments that could unlock stalled aid money. Draghi said the ECB will reintroduce the waiver at some point, ‘‘but several conditions have to be satisfied.’’

Shut out from ECB funding, Greek banks currently rely on emergency liquidity from their national central bank. The ECB reviews the allowance on a weekly basis to make sure it doesn’t run against a ban on state financing.

Draghi said Greek lenders are solvent ‘‘at present,’’ even though ‘‘the liquidity situation has been deteriorating.’’

Smooth Implementation

In his opening statement to the parliament in Brussels, Draghi pushed aside concerns that the ECB’s quantitative-easing plan will be hampered by a shortage of bonds available to buy.

‘‘We see no signs that there will not be enough bonds for us to purchase,’’ he said. ‘‘Feedback from market participants so far suggests that implementation has been very smooth and that market liquidity remains ample.’’

The Frankfurt-based central bank started buying government debt this month to revive inflation. While the region’s recovery is being helped by cheap oil and a weak euro, Draghi is faced with a resumption of the crisis in Greece, with the country on the verge of a default that would shake the foundations of the single currency.

The ECB plans to buy 60 billion euros ($65.5 billion) a month of public-sector debt under its latest stimulus program, which is slated to last until September 2016, or until inflation is back on track toward the central bank’s goal of just under 2 percent. In the first two weeks of the program, 26.3 billion euros of public sector purchases were settled.

Regulatory Changes

In his capacity as chairman of the European Systemic Risk Board, Draghi said the current regulatory treatment of sovereign debt, which allows banks to load up their balance sheets with government bonds against little or no capital, underestimates the ‘‘possibility of sovereign default” and can lead to “systemic risks.”

“Changes to the current framework must be carefully designed” to avoid creating instability, he said, adding that they will be implemented only “once the situation in sovereign-bond markets has normalized.”

Draghi said that recent signs point to an improving recovery and that QE will be a integral part of this. He also said lower interest rates are feeding through to the broader economy and helping investment.

“A key factor for a full recovery of the euro-area economy and ensuring that inflation does not remain too low for too long will be the extra stimulus,” he said.

Draghi has been increasingly upbeat about the euro-area revival since the announcement of the QE program. “We can rightly be optimistic about the outlook,” he said on March 16, two weeks after ECB staff forecast growth will accelerate from 0.9 percent last year to 2.1 percent in 2017 -- a pace of expansion the region hasn’t seen since 2007.

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