The European Central Bank hasn’t been very effusive in its praise of Greece lately — which makes Wednesday’s statement that the ECB “welcomes the convincing additional and permanent fiscal consolidation measures” taken by Athens practically a high-five.
 |
| Greek Prime Minister George Papandreou (AFP/Getty Images) |
The extra 4.8 billion euros in tax increases and spending cuts unveiled Wednesday “demonstrates the strong commitment of the Greek government to achieve the fiscal objectives enshrined in its stability program,” the ECB said.
Thats much different from the guarded tone take in past weeks. One month ago, Jean-Claude Trichet only called action Athens had taken up to that point “steps in the right direction.”
Wednesday’s statement “is not even the style of the ECB,” says BNP Paribas economist Luigi Speranza. “It sounds peculiarly positive, but to be honest, it’s fair.”
What’s different about Wednesday’s package out of Greece is that items like a higher value-added tax and cuts in public-sector wages deliver revenues to the government, unlike previously announced goals like better tax collection where the money may not materialize.
The ECB’s statement, coming just hours after Moody’s said Athens’ steps are consistent with its A2 rating, also eases market fears about whether Greek government bonds will be welcome as ECB collateral next year.
Right now, Greece is safe thanks to relaxed collateral rules in place since the height of the crisis. But the ECB is due to revert back to its old system in 2011. Moody’s is the only agency that still has Greece above the minimum A-requirement under the old rules. Wednesday’s statement by Moodys suggests Greece is safe as long as it does what it promises.
And even if Moody’s were to downgrade Greece further, it’s unlikely the ECB would cut Greece loose. As Speranza notes, “after a statement like [the ECB’s on Wednesday], assuming Greece implements the plan, do you see the ECB not accepting Greek debt as collateral?”