ECB in Focus as Greece Passes Bailout Package

Greece overcame its first major hurdle towards securing its third bailout on Thursday morning, as lawmakers comfortably passed the deal through parliament with 229 of 300 MPs voting in favour of the package. The vote did come at a political cost though as 38 Syriza rebels, including former Finance Minister Yanis Varoufakis, voted against the package, which could now prompt a reshuffling of the cabinet and a request from Prime Minister Alexis Tsipras for those to resign.

The important thing at this stage though is that the vote has passed and discussions can now begin today at a eurogroup meeting regarding a €7 billion bridging loan that will cover Greece’s financing needs, with €3.5 billion owed to the European Central Bank on Monday, while the details of the bailout deal are agreed. The bridging loan will initially come from the European Financial Stability Mechanism after non-eurozone countries were given assurances that in the event that Greece does not repay the loans, they will be protected. This came after strong opposition to the use of the facility by the U.K., among others, at the EFSF being used for what is a eurozone, not an EU, bailout.

The next step now is for the deal to pass through the other 18 eurozone parliaments, with the biggest obstacle potentially being the vote in the Bundestag with many German MPs unhappy at once again providing a bailout for a country that has been extremely critical of it. While Chancellor Angela Merkel faces a backlash from some within her own ruling coalition, as well as those outside, the vote is likely to pass, paving the way for the three year €86 billion bailout to be discussed.

The ECB will announce its latest monetary policy decision today, with no change likely in interest rates or asset purchases. Instead, the focus during the following press conference is likely to be Greece and whether the ECB will increase its emergency liquidity assistance (ELA) to Greek banks, which have been closed for a week and a half and capital controls put in place.

The banking system is on the verge of collapse and while funds to recapitalize the banks is part of the bailout package, the ECB will need to provide temporary assistance in the meantime. Draghi may also be questioned on what impact the last six months has had on the eurozone economy as a whole and whether it has affected the assessment that was made by the central bank when it set the terms of its quantitative easing program. Could the central bank now consider extending its monetary stimulus program beyond next September or consider increasing it?

While Greece and the ECB will remain the focus in the markets, there is some key data being released throughout the day. Final CPI inflation data for the eurozone will be released ahead of the ECB decision and is expected to remain unchanged at 0.2%, with the core reading a little higher at 0.8%. This afternoon we’ll get the latest jobless claims, Philly Fed manufacturing index and CB leading index data from the U.S..

We’ll also hear Federal Reserve Chair Janet Yellen’s second testimony on the semi-annual monetary policy report, this time in front of the Senate Banking Committee. These tend to go largely the same way as yesterday’s event but should still be monitored closely for any surprises, of which there were none yesterday. Yellen reaffirmed that the Fed is on course to raise interest rates this year as long as the economy improves in line with expectations.

Economic Calendar

The FTSE is expected to open 28 points lower, the CAC 41 points higher and the DAX 98 points lower.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.