The going gets tough…

ECB’s decision, to suspend the waiver for the acceptance of Greek bonds as loan collaterals, came as a shock to Greece but was rather expected by the markets (although this does not preclude a strong ‘market reaction’). The decision per se does not have immediately dire consequences for the Greek economy. It raises the cost of borrowing for Greek banks (from 0.05% to 1.5%) but it doesn’t stop their access to liquidity, as this will continue to be provided by the Bank of Greece through the ELA mechanism. The decision is moreover rather sensible from the point of view of Central Bank finance, as Greece indeed cannot be assumed to be in an adjustment programme given the recent pronouncements of the Greek government (recall that the ECB accepted Greek bonds as collaterals, which are not credit-worthy in a market-rating sense, solely on the basis of the implicit guarantee by the Eurogroup that Greece’s solvency is guaranteed as long as the country remains in an adjustment programme).