Five Questions for Mario Draghi (and Four of Them Are on Greece)

Photographer: Andrew Harrer/Bloomberg

Here are five things to listen for from Mario Draghi on Thursday. The European Central Bank president holds a press conference at 2:30 p.m. in Frankfurt, 45 minutes after the Governing Council’s announcement on interest rates. Greece will of course be the main course on the menu.

What will it take for the ECB to increase liquidity support for Greek banks?

A decision on the level of emergency liquidity may come as soon as Thursday morning. With Greek banks closed for more than two weeks and the country under capital controls, the European Commission says they are on the verge of collapse. 

Yet for the ECB to end its freeze on emergency funding, officials will need to feel confident that the country’s government is on track to secure an external bailout and stave off collapse. Greek lawmakers passed austerity laws in the early hours of Thursday morning, albeit with enough dissent within the ruling Syriza party to challenge Prime Minister Alexis Tsipras’ majority.

The ECB also needs to be sure that the country won’t default on the 3.5 billion-euro ($3.8 billion) bond bought by the ECB under an earlier crisis program maturing on July 20. The European Commission is seeking 7 billion euros in bridge financing for Greece, drawn from a crisis-response fund requiring approval from all 28 EU members.

How will the ECB react if Greece is unable to make the July 20 payment?

Last weekend’s all-nighter involving euro-area finance ministers resulted in an agreement that seemed to be sufficient for the ECB to maintain the current 88.6 billion-euro ceiling on ELA. July 20 could change this.

The Governing Council will probably have little choice but to tighten or even withdraw liquidity should Greece fail to pay its bill. Then again, if negotiations toward a third bailout package are still ongoing, Draghi and his colleagues may be unwilling to collapse that process.

Can Greece really deliver on the conditions of its bailout?

So far Draghi has remained silent with regard to the overall agreement, meaning everyone will be listening closely for his assessment as to whether the deal will lead to a firm recovery. Debt sustainability will be a key issue here, as well as the likelihood of austerity reforms actually being successful. The IMF has called for massive debt relief, arguing that the Greek economy is too damaged to be able to carry its burden.

Can the euro-area economy withstand the Greek crisis?

The central bank’s Executive Board members have repeatedly issued assurances that they have all the necessary tools to deal with potential turbulence from the Greek crisis. The ECB’s ability to combat contagion will be an important question at the press conference, but Draghi is likely to dismiss concerns as groundless. Yet with talk of Grexit having erased the certainty of euro irreversibility, underlying trust in the euro zone may have been been shaken.

How is the QE program going?

While monetary policy might take a back seat on Thursday, Draghi is likely to reiterate that the central bank will implement its QE program as planned. Analysts will watch closely for any hint of potential changes to the pace or composition of purchases, which might be justified by a loss of momentum in the recovery or a weakening in the upward path of inflation. Draghi may also be asked about the ECB’s policy of front-loading asset purchases ahead of the summer lull.