The German daily newspaper Handelsblatt revealed on April 26, a confidential internal legal document of the German Federal Bank or Deutsche Bundesbank that accompanied the appeal of the German Central Bank to the Federal Constitutional Court of Germany against the European Central Bank (ECB).
According to the 29-page document, ECB has taken a great risk by offering liquidity to Greece via the Emergency Liquidity Assistance (ELA) mechanism.
“The liquidity disposal from the euro system to cover Greece’s financial needs is particularly problematic and makes clear the undertaking of financial duties by monetary policy’s authorities. In that way, ECB has taken an extremely high risk, granted that Greece’s exit from the Eurozone cannot be considered impossible in any case, at any time,” as confirmed by the German Central Bank, which means that the document Handelsblatt is original.
The Bank of Greece Governor and member of ECB’s Governing Council, George Provopoulos, stated on April 26 that it is possible the ECB will never buy bonds via the program for bonds purchase.
The program entitled Outright Monetary Transactions (OMT) is credited to have calmed the market’s fears of the Eurozone’s dissolution. ECB presented the program in September 2012, but has not used it.
“Granted that there has been a kind of stabilization and leveling during the last few months, it is possible that [the program] will never be used,” Provopoulos said in an interview with Bloomberg premier site for business and financial market news.
“OMT has provided us with great help. It is a good thing that we decided to proceed with it, in case it was needed,” Provopoulos noted. He added that the Greek economy is likely to recover mid next year or sooner.
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