Bank of Greece: PEPP End Could Boost Greek Government Borrowing Costs

28 June 2021

By David Barwick – FRANKFURT (Econostream) – Potentially higher borrowing costs to be borne by the Greek government if the European Central Bank ends its pandemic emergency purchase programme (PEPP) may be one of the hurdles the Greek economy will face in the medium term, according to the Bank of Greece on Monday

In its Monetary Policy Report 2020-2021, the Bank of Greece said that the country ‘still faces significant challenges in the short and the medium-to-long term’, with the main short-term challenges being pandemic containment and the return to ‘a solid growth trajectory.’

Beyond the short term, challenges identified by the Greek central bank included the ‘re-emergence of the twin deficits, along with a private and public debt overhang’, a probable further increase in an already high stock of NPLs among Greek banks, low structural competitiveness, potentially heightened structural unemployment, a high investment gap and a potential withdrawal of European Central Bank support.

‘An additional risk in the medium term is a possible termination of the ECB emergency pandemic-related monetary policy measures before Greek bonds regain investment grade status’, the Bank of Greece wrote. ‘In such an event, Greek bonds would be vulnerable to possible shocks to the global financial system, which could arise from an abrupt tightening of monetary policy in advanced economies in response to a faster than anticipated rise in inflation.’

The Greek central bank acknowledged the global recovery but said it ‘appears to be uneven and asymmetric’ and fretted that the ‘different pace of recovery across economies could lead to divergences in monetary policy stance, which would exacerbate inequalities and increase the risks to global financial stability.’

Greek economic growth was projected at 4.2% in 2021, 5.3% next year and 3.9% in 2023.