FRANKFURT: The European Central Bank (ECB) sat down to its regular policy meeting on Wednesday as Greek Prime Minister Alexis Tsipras headed to Brussels for make-or-break bailout talks.
While the ECB’s decision-making governing council convened in the central bank’s headquarters in Frankfurt, all eyes were on a scheduled meeting between Tsipras and EU Commission president Jean-Claude Juncker in the Belgian capital on Wednesday evening.
Greece and its international creditors have exchanged proposals to reach a deal to unlock 7.2 billion euros ($8.0 billion) to help Athens make a critical repayment on Friday. But months of fractious talks have been deadlocked over creditors’ insistence that Athens undertake greater reforms which Greece’s anti-austerity government has refused to match.
There are fears that Greece could default, possibly setting off a chain reaction that could end with a messy exit from the eurozone.
With the ECB not expected to announce any new monetary policy moves, analysts said they will be listening out for what president Mario Draghi has to say about the Greek situation.
Draghi attended a meeting of finance ministers and central bank governors of the Group of Seven wealthiest countries in Dresden last week, where the efforts to hammer out a deal and prevent a disastrous “Grexit” or Greek exit from the eurozone took center stage.
He also took part in a late-night meeting in Berlin with German Chancellor Angela Merkel, French President Francois Hollande and EU Commission chief Juncker on Monday.
“We suspect that Draghi and colleagues will maintain a hard line on Greece,” said Capital Economics economist Jonathan Loynes.
QE in focus
Among the other issues on the agenda, the latest economic data and the perceived effectiveness of the ECB’s recent raft of policy measures will also be the focus of attention, analysts said.
In March, the ECB embarked on a program of so-called quantitative easing or QE, buying up 1.14 trillion euros ($1.3 trillion) in assets—at a rate of 60 billion euros per month—until September 2016.
The aim is to inject liquidity into the financial system and push up the eurozone’s chronically low rate of inflation.
Executive board member Benoit Coeure caused a stir two weeks ago when he announced that the ECB could “frontload”—or temporarily ramp up—the purchases prior to the summer drop-off in liquidity.
And Draghi could hint at even more frontloading if the underlying macroeconomic backdrop justified it, analysts said.
According to the minutes of the governing council’s last meeting in April, while the central bank chiefs saw a case for “guarded optimism on the short to medium-term outlook for the euro area economy,” they still felt it was important “to remain cautious” given the prevailing economic headwinds.
Hence, there is no talk of scaling back QE just yet.
New economic forecasts
The ECB will publish its latest updated forecasts for growth and inflation in the 19 countries that share the euro.
According to the ECB’s last projections published in March, eurozone growth was expected to reach 1.5 percent in 2015, 1.9 percent in 2016 and 2.1 percent in 2017.
But with the single currency area growing by only 0.4 percent in the first three months, those forecasts could come under pressure or, at best, be left unchanged, analysts said.
Berenberg Bank economist Christian Schulz said he expected Draghi “to take a cautious tone on the economic outlook, offer a clear commitment to continuing quantitative easing at least until September 2016 and warn governments on structural reforms.”
Natixis economist Johannes Gareis agreed.
“We do not expect a policy change,” he said. “Draghi will most likely express strong commitment to full QE implementation until September 2016 or even longer.”