Greece’s Tranche and the ECB

Events out of the Europe this week continue to highlight eurozone politicians’ commitment to take necessary measures to maintain the monetary union.

The action this week started, quite appropriately, in Greece, as eurozone finance ministers agreed to release their part (€5.8 billion) of Greece’s sixth tranche of aid. Recall, this latest tranche of aid is necessary to prevent Greece from outright defaulting on its debt, though a planned debt restructuring is in the works. This can be seen as a vote of confidence in at least the preliminary steps Greece has taken to meet required austerity conditions, although more measures and fiscal tightening are likely in store. It’s also worth noting, as of press time, the IMF had yet to announce a decision to release their portion (€2.2 billion) of the tranche. However, all indications point to that happening, especially given the backing by the eurozone’s finance ministers.

Meanwhile, ECB President Mario Draghi addressed the European Parliament early Thursday, where he cajoled officials to commit to a new pact to draw eurozone countries closer together. Draghi alluded that a tighter pact—with greater control over fiscal budgets—would enable the ECB to step up their activity. Thus far, this has been the clearest signal of what it would take for the ECB to step up activity, such as purchases of troubled-nation’s debt, to help contain Europe’s fiscal issues.

It’s been a rough few weeks (and months) in the eurozone, but in our view the overriding issues haven’t changed much. Most eurozone politicians understand they have little incentive to allow a disorderly dissolution of the euro and plenty of incentives to do whatever it takes to keep it intact. Looking to next week, stay tuned to the EU Summit, which should reveal details on officials’ actions to preserve the union moving forward.