This weekend we got details of an EU/IMF bailout agreement for Greece that basically involves big loans in exchange for big tax hikes and government spending cuts.
The market was not all that impressed. The euro, after perking up initially, promptly resumed its slide.
However this news is a much bigger deal.
According to Bloomberg, the European Central Bank has announced the indefinite suspension of Greek collateral limits–meaning, basically, that banks can use Greek debt of any quality as collateral in exchange for central bank liquidity. The ECB says it’s making the move in conjunction with the other bailout measures.
This move is what some have referred to as the ECB’s “nuclear option,” and it should take some pressure off the banks who might have otherwise been liquidating.
As Edward Harrison joked on Twitter, the ECB has, in one fell swoop, just made all the ratings agencies irrelevant.