The European Central Bank (ECB) is suspending the eligibility of Greek government bonds as collateral for its liquidity operations, starting from February 11th.
In a press release on Wednesday night, the ECB, which was having a governing council meeting earlier in the day, explained their decision saying that it is currently impossible to assume a successful conclusion of the current Greek program.
The waiver allowed marketable debt instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfill minimum credit rating requirements.
“The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the program review and is in line with existing Eurosystem rules,” the ECB said in a statement.
The central bank also said Greek banks will receive liquidity from the emergency liquidity assistance (ELA). “Liquidity needs of Eurosystem counterparties, for counterparties that do not have sufficient alternative collateral, can be satisfied by the relevant national central bank, by means of emergency liquidity assistance (ELA) within the existing Eurosystem rules,” it said.
“It is currently not possible to assume a successful conclusion of the program review” for Greece, it added.
The move, which means the Greek central bank will have to provide its banks with tens of billions of euros of additional emergency liquidity in the coming weeks, was a response to what many in Frankfurt see as the Greek government’s abandoning of its aid-for-reform program.
The decision came just hours after Greece’s new finance minister, Yanis Varoufakis, emerged from a meeting with ECB President Mario Draghi to say the ECB would do “whatever it takes” to support member states such as Greece.
It means that the tens of billions of euros of Greek government bonds as well as bank bonds guaranteed by Athens will no longer qualify as security in return for ECB funding to those banks.
Krishna Guha, vice chairman of Evercore ISI, said: “This is consistent with our expectation that the ECB will take a hard line on Greece.”
The euro fell and gold rose after the ECB statement. The common currency traded at $1.1338, from $1.1424 earlier. Gold for April delivery, the most active contract, was recently at $1,271 an ounce, from $1,264.50.
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