ECB Raises Pressure on Greece

Πηγή: Wall Street Journal
By BRIAN BLACKSTONE And MARGIT FEHER
July 20 2012

FRANKFURT—The European Central Bank said it would reject Greek government bonds as collateral for its normal lending operations from next Wednesday, raising pressure on Athens to comply with demands of its international creditors for deep budget cuts.

Government bonds and other debt securities backed by Greece "will become for the time being ineligible for use as collateral" in the ECB's monetary policy operations, the ECB said in a statement.

Greek banks, which are largely shut out of private markets for financing, depend critically on cheap ECB loans to meet their daily funding needs. In June, Greek banks tapped the ECB and Greece's central bank for a combined €136 billion ($166 billion) in loans through normal refinancing operations and emergency credit, an amount equal to two-thirds of the country's gross domestic product.

Friday's decision doesn't cut Greece off from central-bank money. Banks can still access emergency loans through the Greek central bank. However, those loans carry a higher interest rate than normal ECB loans. The credit risk stays on Greece's books and isn't spread throughout the 17-member currency bloc, as is the case for the ECB's usual credit facilities.

It is the second time the ECB has stopped accepting Greek bonds as collateral. The previous time was in February, after Athens imposed steep losses on private creditors in a debt restructuring. That suspension ended after a little more than one week, when the ECB received guarantees from euro-zone governments that Greek bonds posted to the ECB as collateral would be repaid.

Those guarantees are due to expire on July 25, which is what has triggered the ECB's decision.

The ECB said it would revisit the issue of eligibility after inspectors from the so-called Troika—the ECB, the European Commission and the International Monetary Fund—conclude their latest review of Greece's fiscal and economic policies.

ECB officials could have granted Greece a waiver from existing rules that call for a minimum investment-grade rating on government debt for use as collateral. It has issued those waivers in the past for Greece and currently does so for Ireland and Portugal. But the premise for these exemptions is that, even though the countries carry a junk rating, they are complying with the terms of their EU-IMF bailout programs. Greece's program, however, has drifted off course due to the country's recent political paralysis.

By suspending Greece's eligibility, the ECB ups the pressure on Athens to redouble its fiscal and economic reform efforts. Greece is racing to shore up its financing because its cash reserves could run out by the middle of next month. Greece is also seeking a bridge loan from its international creditors to cover to repayment of a €3.1 billion bond that falls due in late August, according to Greek government officials.

The Troika is due to return to Greece Tuesday to assess whether Athens is complying with the terms of its bailout agreements.

Greece's new coalition government agreed Wednesday on the outline of a plan to cut public spending by €11.5 billion over the next two years, but it has pushed back final decisions on belt-tightening measures pending negotiations with its creditors.

The ECB said it "will assess their potential eligibility following the conclusion of the currently continuing review…of the progress made by Greece" under the bailout program.