The European Central Bank said Tuesday that, after a downgrade by Standard & Poor’s of Greece’s credit rating to “selective default,” the country’s bonds would temporarily be ineligible for use as collateral.
Bloomberg reported that the ECB would once again accept Greek sovereign debt as collateral once a 35 billion euro ($47 billion) guarantee arrangement European governments accepted takes effect in the middle of March. The central bank also said that in the meantime, any banks affected by their inability to use Greek debt as collateral can turn for assistance to their own central banks’ Emergency Liquidity Assistance plans.
In a statement, the ECB said that it “has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by the Hellenic Republic for use as collateral in Eurozone monetary policy operations. This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer.”
Christian Schulz, an economist at Berenberg Bank in London, was quoted saying, “After the downgrade it was clear this was going to happen. The ECB isn’t going to make an exception to its rule on not accepting defaulted collateral, and this is anyway a temporary arrangement.”