ECB stands ready to act with all instruments available within its mandate

Should a Greek exit result in sizeable dislocations in euro area financial markets, the ECB could argue that there has been an unwarranted tightening in the monetary policy stance which motivates further policy action.

Peripheral bond yields and spreads have broadly remained contained so far, but should contagion accelerate, the ECB could speed up its asset purchases. The front-loading solution provides some flexibility for the ECB to address adverse market developments in the short term.

"The ECB could also seek to step-up QE from its €60bn pace, within the 25% issue limit and 33% issuer limit, but would need to point to a real deterioration in the medium-term inflation outlook", notes Societe Generale.

 While, it is believed a lower long-term inflation forecast than the ECB, we have currently no indications that the Greek fall-out could be sufficiently significant to materially lower euro area inflation forecast.

In case of significant contagion to other euro area countries with fiscal difficulties, the ECB also has the OMT available (conditional on an ESM programme). However, it is doubtful that it could be used, especially as central bank holdings of riskier government bonds will be highly discredited by a Greek default and with the German Constitutional Court still to provide its final views Since announcing that the ECB intended to "front-load" asset purchases due to seasonal patterns, the ECB purchased €100.3bn of debt (between 15 May and 3 July) issued by sovereigns and European agencies as well as ABS and covered bonds. On a monthly basis, this averages €62bn, well below what could have been expected. In addition to that, ECB's purchases slowed down significantly in late June/early July, added Societe Generale.