The euro is getting pounded, falling more than 1.3% against the US dollar after the European Central Bank’s announcement regarding the eligibility of the use of Greek bonds as collateral.
In a statement, the ECB said:
- ECB’s Governing Council lifts current waiver of minimum credit rating requirements for marketable instruments issued or guaranteed by the Hellenic Republic
- Suspension is in line with existing Eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review
- Suspension has no impact on counterparty status of Greek financial institutions
- Liquidity needs of affected Eurosystem counterparties can be satisfied by the relevant national central bank, in line with Eurosystem rules
The Governing Council of the European Central Bank (ECB) today decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic. The waiver allowed these instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfil 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 programme review and is in line with existing Eurosystem rules.
This decision does not bear consequences for the counterparty status of Greek financial institutions in monetary policy operations. 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
As Business Insider’s Sam Ro explained, this statement from the ECB basically means that Greek banks can no longer exchange Greece’s poorly-rated government bonds for money. Other collateral that is not Greek debt can still be posted.
Bloomberg’s Lorcan Roche Kelly said that this statements means the ECB doesn’t see Greece, “complying with existing bailout rules.”
In addition to the euro falling, the ‘GREK’ ETF that tracks the Greek market is also crashing following the news.
Over the last several months, the euro has weakened considerably against the euro, largely as investors anticipated the ECB’s quantitative easing announcement made on January 22.
And since the left wing anti-austerity party Syriza was elected to power in Greece, the euro has been volatile as markets continue to worry about a “Grexit” or a similarly destabilizing action in the euro area.