Greek Bonds No Longer Good as Collateral -- ECB

The European Central Bank (ECB) said this morning that Greek debt, whether issued or backed by the government, is “for the time being” no longer eligible to be used as collateral in eurozone monetary policy operations. The ban takes effect on July 25, when the current buyback program ends. Had Greek sovereign debt been used as collateral beyond that date, the ECB would have been on the hook for losses.

The announcement sent the euro plunging to 1.2144, its lowest point in the past two years versus the U.S. dollar. Compounding the drop in valuation was a request from Spain’s Valencia region for help from Spain’s central government to help Valencia repay outstanding debt. Earlier today, eurozone finance ministers approved a €100 billion bailout package to recapitalize Spanish banks.

The ECB will review Greece’s eligibility to use its debt as collateral in conjunction with the European Commission and the International Monetary Fund (the so-called Troika):

In line with established procedures, the Governing Council of the European Central Bank (ECB) will assess their potential eligibility following the conclusion of the currently ongoing review, by the European Commission in liaison with the ECB and the IMF, of the progress made by Greece under the second adjustment programme.

According to the ECB, Greek banks will be able to address liquidity needs “in line with existing Eurosystem arrangements.” For now, Greek banks will have to go to their central banks and borrow at higher interest rates.

Paul Ausick