The head of the European Central Bank welcomed Greece's reform plans on Tuesday but said he would keep a close watch on ideas that depart from previous pledges, underlining the need for Greece to stick to its commitments. In a letter to the chairman of the Eurogroup of finance ministers, Mario Draghi said that although some reforms proposed by Athens needed fleshing out, they were enough to justify continuing aid to Greece.
Our initial impression is that the document covers a wide range of reform areas and in this sense, it is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review," he wrote to Dutch Finance Minister Jeroen Dijsselbloem. The backing from Draghi was important as the ECB plays a central role in the funding of Greek banks. The central bank could make it easier for them to regain direct ECB funding by once again accepting Greek bonds as security.
Short of that, it also has the final say on how much emergency funding the Greek central bank can give the struggling lenders in the short term. The statement made no mention of any immediate change to this liquidity lifeline. Although broadly supportive of Athens' policy proposals in his letter, Draghi clearly showed that he wanted Greece to stick to its earlier commitments.
The commitments outlined by the authorities differ from existing programme commitments in a number of areas," he wrote. "In such cases, we will have to assess during the review whether measures which are not accepted by the authorities are replaced with measures of equal or better quality." I would also again urge the Greek authorities to act swiftly to stabilise the payment culture and refrain from any unilateral action to the contrary," he wrote. Greece secured a four-month extension of its financial rescue on Tuesday when its euro zone partners approved a reform plan that backed down on key leftist measures and promised that spending to alleviate social distress would not derail its budget.
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