State bonds restored as accepted collateral for the supply of liquidity to the country’s banks
By Yiannis Papadoyiannis
One day after Standard & Poor’s upped the country’s credit rating upgrade six notches, Greek economy received another major boost on Wednesday from the European Central Bank, as it said state bonds will be accepted again as collateral for the supply of liquidity via the Eurosystem.
In its decision, the ECB cited the “wide range of measures already implemented by the Greek government in the areas of fiscal consolidation, structural reforms, privatization and financial sector stabilization,” which serves to stress the change in the climate regarding Greece abroad, following a long period of gloom.
Bank officials said on Wednesday that while the decision does not dramatically change liquidity conditions in Greece, it does constitute a major step toward stabilizing the credit sector and the country’s gradual return to normality, with a significant reduction in the cost of money for local lenders.
The decision covers liquidity needs of up to 25 billion euros. Local banks had been paying an interest rate of 3 percent, but with the ECB move, that will drop to 0.75 percent, the Frankfurt-based lender’s benchmark rate. As a result, while Greek banks had been paying the Eurosystem 750 million euros per year, they will now have to pay no more than 187 million, and therefore will be able to ease the terms of funding for their clients.
Last July the ECB had decided that the securities issued or guaranteed by Greece would temporarily become insufficient for use as collateral in monetary transactions within the Eurosystem, adding that it would review its decision later in the year while examining the course of the Greek streamlining program.
Kathimerini understands that the ECB decision concerns Greek bonds of 50 billion euros that after the security haircut constitute collateral for cash to Greek banks amounting to 25 billion euros.
Also on Wednesday, the spread between the Greek benchmark 10-year bond and the equivalent German bund dropped to its lowest point in the last 20 months, to 992 basis points, while bond prices reached a 17-month high.