FRANKFURT (Reuters) - European Central Bank policymakers gathering on Wednesday will examine possible further emergency funding for Greece’s banks as they take stock of a wider economic picture showing early signs of improvement.
With falling prices in the euro zone beginning to stabilize, ECB President Mario Draghi will be able to claim an early success for the quantitative easing scheme -- money printing to buy chiefly government bonds -- launched by the bank in March.
The ECB’s borrowing rates are all but certain to be held at record lows, but continued wrangling between Greece and the euro zone over reforms and aid is casting a cloud of uncertainty over the 19-country currency bloc.
Athens has until the middle of this week to improve a package of reforms required for the release of euro zone loans that it needs to stay afloat.
Were Greece ultimately to tumble out of the euro, it would deal a blow to the credibility of the currency union. Athens was first bailed out almost five years ago by the euro zone with another aid deal in 2012 but its future remains uncertain.
“The euro crisis is not over. But the currency union is in a sweet spot, with a lower euro and oil prices helping the economy,” said UBS economist Martin Lueck.
“QE can help to repair the euro zone economy but it is too early yet to judge its chances.”
Draghi is likely to address the euro zone’s improving prospects. The ECB’s actions are creating fertile conditions for growth, with the euro at a 12-year low buoying exporters and borrowing in many countries cheaper than ever.
Some investors hope he will also show there is room for flexibility in rolling out money printing to ensure the 60 billion euro ($63.29 billion) a month program stays on track.
With recent data pointing to a economic turnaround, some financial market traders are already asking when and how the ECB might start scaling down its stimulus, although that is still a long way off for now.
“The ECB can be quite happy about recent developments,” Commerzbank economist Joerg Kraemer said, pointing to improving lending. “But they will not want to rule out further steps, such as that the (QE) program goes beyond September 2016.”
Draghi will hold a press conference on Wednesday before he travels to Washington to join finance ministers and central bankers from the Group of 20 top economies at the International Monetary Fund’s Spring meeting.
He may reveal whether the ECB’s decision-making Governing Council extended the limit on emergency liquidity that can be drawn by Greek banks.
This has been steadily rising in recent weeks as savers, worried about the country’s prospects, have withdrawn deposits.
($1 = 0.9480 euros)
Additional reporting by Marc Jones; Editing by Catherine Evans