Greek Government’s Signals are ‘Very Mixed,’ ECB’s Jazbec Says

Alexis Tsipras, Greek Prime Minister-elect, signs a book as he is sworn in as prime minister at a ceremony at the presidential palace in Athens, Greece, Jan. 26, 2015.

Photographer: Kostas Tsironis/Bloomberg

Greece’s new government is sending “very mixed signals” on its aid program and it’s too soon to say how the country will be treated in the European Central Bank’s bond-buying plan, ECB Governing Council member Bostjan Jazbec said.

“Our concerns and hopes are related to how the Greek government will understand the situation and react to it,” he said in an interview in Ljubljana on Thursday. “It’s too early to directly answer questions on when and how the ECB can buy Greek government bonds.”

Jazbec’s comments are the most explicit yet from an ECB policy maker on how the institution views the Greek government’s stance. They signal that the nation’s participation in the quantitative-easing program announced by the ECB last week is clouded by the newly elected government’s plans to backtrack on austerity pledges and restructure its debt.

“Let’s wait and see how the Greek government will comply with all the requirements they have to fulfill and how this will affect the whole financial situation,” said Jazbec, 44, who also heads the Slovenian central bank. “There are very mixed signals from the Greek government on how they want to proceed with the program and with the reforms.”

ECB Executive Board member Benoit Coeure said on Thursday that the central bank can buy Greek bonds, even though they are below the minimum investment-grade rating that is in principle required, as long as the country remains in an economic-adjustment program.

Bond Market

“In order to waive the rating requirement, we need to have something else,” Coeure said at an event in Milan. “We need to have a program.”

ECB President Mario Draghi said last week that Greece won’t be part of QE before July at the earliest because the central bank already holds relatively large amounts of the nation’s debt from a previous program.

Greek 10-year bonds halted a 3-day slide and bank stocks rebounded on Thursday as the government moved to contain the fallout from pledges made by its ministers and downplay the prospect of an imminent clash with creditors.

Within 48 hours of the appointment of an anti-bailout cabinet under Prime Minister Alex Tsipras, stocks in Athens had fallen to lows not seen since the peak of the debt crisis. Banks, in which Greek taxpayers are the biggest shareholders, lost about $11 billion in value.

Intact Region

Tsipras gave assurances that Greece won’t make any unexpected moves regarding its finances in about two hours of talks with European Parliament President Martin Schulz in Athens on Thursday.

Daniele Nouy, the chair of the ECB’s Supervisory Board, said in an interview on Wednesday that while Greek banks are probably strong enough to pull through the market turbulence, they “need to manage in a conservative fashion their liquidity positions.”

On the topic of whether Greece might leave the currency bloc, Jazbec said “it is too early to talk about any other scenario than to keep the integrity of the euro zone intact.”

The ECB’s decision to embark on more than 1 trillion euros ($1.1 trillion) of government-bond purchases from March will help spur prices and boost economic growth in the 19-nation euro area, he also said in his office in the Slovenian central bank.

“I clearly expect the outlook for inflation and gross domestic product to improve,” he said. “It was already my understanding, even before QE, that our measures would positively affect the outlook, and now they should do so even more.”

Inflation Data

The ECB in December projected the currency bloc’s economy will expand 1 percent in 2015 and 1.5 percent next year. Officials predicted inflation of 0.7 percent this year and 1.3 percent in 2016. Draghi said at the time that the forecasts didn’t take into account the most recent slump in oil prices.

The euro-area inflation rate was probably minus 0.5 percent in January, the second-weakest rate since the introduction of the single currency, according to a Bloomberg survey before the European Union’s statistics office publishes the data at 11 a.m. Luxembourg time on Friday.

Since June, the Frankfurt-based central bank has embarked on a range of measures including a negative deposit rate and purchase programs for covered bonds and asset-backed securities. Last week, it pledged to spend 60 billion euros a month through at least September 2016 on assets including sovereign bonds.

While that action was necessary to stave off the threat of deflation, it’s now up to other institutions and national governments in Europe to play their part, Jazbec said.

Juncker Plan

“I’d like to point out, once again, that the central bank is not the only game in town,” he said. “Now the European Union, the European Commission, has to complement, if not supplement, the measures the ECB introduced. That of course includes the full implementation of the Juncker plan, which at this point is a must, and secondly all the structural reforms on a national level.”

European Union leaders last month endorsed a 315 billion-euro investment plan proposed by EC President Jean-Claude Juncker as a way to unlock private-sector funding. They also cautioned that euro-area rules on national budgets must not be flouted to run up debt.

Jazbec signaled that action by other institutions is necessary because the ECB has limits to how much risk it can take on its balance sheet.

“If we had a fully fledged fiscal union the ECB wouldn’t have any problems regarding risk sharing,” he said. “But currently we need to face all the restrictions, legal and regulatory restrictions, which are generated by still rather-disseminated national fiscal policies.”

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