ECB’s de Guindos: Main Impact of Russian Aggression Macroeconomic, Not Financial

22 March 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Tuesday suggested that limited European financial exposure to Russia meant that the main impact of Russian military aggression against Ukraine would be macroeconomic.

In remarks during a panel discussion in Athens, de Guindos gave a positive personal take on the subject of Greek sovereign debt eligibility for ECB purposes.

‘The impact of the terrible invasion and the war in Ukraine has not been comparable to what happened two years ago, when the Covid … shock started to … be felt in the … world economy and in the European economy’, he said.

After initial volatility, equity markets are now ‘much more quiet, much more calm’, with banking sector shares also having recovered from the initial hit, he said.

Spreads have hardly widened on the covered bond market, and in the corporate bond market, ‘now the situation is quite normal’, he said.

While commodity derivatives need careful monitoring, given the increase in margin calls in the wake of commodity price hikes, ‘so far, we have not seen … a lot of stress there and the majority of the margin calls have been perfectly honoured by … the subscribers of these margin calls', he said.

The impact on Europe’s economy and financial sector would thus be primarily in terms of inflation and growth, which is ‘something that we have to look at very, very carefully’, he said.

Asked about ECB support for Greece, de Guindos responded, ‘Shortly the Governing Council will take some decisions on the eligibility of Greek bonds for collateral and for the PEPP purchases, the reinvestment phase. … I do not prejudge the decisions that the Governing Council is going to take.’

‘My personal opinion is that we have seen a lot of improvement in the Greek economy, both in terms of structural reforms and fiscal consolidation’ he continued. ‘And this has been, you know, reflected in the decisions taken by the … ratings agencies. Continuously, you know, they have improved, they have upgraded the opinion on Greek bonds. And I think that this is something that we should take into consideration.’

‘[T]he Greek economy has made a lot of progress, is much more resilient than it was only two, three years ago, and I think this is something that we should take into consideration’, he added.