ECB warns it could reject Greek bonds as collateral

19th May 2011, Comments 0 comments

The ECB could stop accepting Greek bonds as collateral against central bank funds if Athens changes terms under which it repays its debts, the bank's chief economist has said.

A European Central Bank spokesman confirmed on Thursday a quote by ECB chief economist Juergen Stark, who had said on Wednesday in Athens: "A sovereign debt restructuring would undermine the eligibility of Greek government bonds.

"A continuation of liquidity provisions would be impossible."

If the ECB followed through on the warning, it would abandon an exceptional decision that allows Greek banks to borrow ECB funds by putting up Greek sovereign bonds as collateral.

Those bonds have been downgraded to junk status and would not normally qualify.

The ECB has clearly and repeatedly voiced opposition to any kind of change in how Greece is to reimburse its debt, out of concern that it could cause the Greek banking sector to collapse and a ripple effect could slam the 17-nation eurozone.

Various ways of restructuring Greece's public debt have been floated recently as markets become convinced that Athens will not be able to reimburse the money it has borrowed on time.

Earlier this week, the head of the Eurogroup of finance ministers, Jean-Claude Juncker, had mooted one such possibility, but stressed Greece would first have to demonstrate serious efforts in getting its finances in order.

Greece currently has around 340 billion euros ($480 billion) in debt, an amount that could rise to roughly one-and-a-half years of total national output by the end of 2011.

© 2011 AFP

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