ECB calls out the Greek bluff – Investec

FXStreet (Barcelona) - The Investec Team comments that ECB’s decision to restrict funding to Greece by banning the use of junk-related Greek government bonds as collateral is actually a measure to protect the central bank from any potential losses out of a greek debt restricting.

Key Quotes

“After a brief rally from seemingly positive talks between Greece and Germany and the China news, the Euro suffered as the ECB "lifted its current waiver on the minimum credit rating requirements for marketable instruments issued or guaranteed by the Hellenic Republic".”

“The ECB essentially restricted Greek access to its direct liquidity lines (cheap liquidity) by banning the use of junk-rated Greek government debt as collateral, citing concerns about the country's commitment to existing bailout pledges.”

“The new rules come into effect on Feb 11, and it means that Greek banks, that have liquidity needs and no other collateral to post, will have to rely on Emergency Liquidity Assistance (more expensive liquidity) from the Greece Central Bank (approved by the ECB).”

“The move puts pressure on the new Greek government to resolve the current talks where there appears to be limited ECB tolerance, while the move also attempts to protect the ECB from any losses on Greek debt in a potential debt restructuring.”

“The Greek cabinet that were trying to play poker with the ECB may have just had their bluff called with no cards to play.”

“The Euro has weakened across the board on the news and EURUSD trades back in the 1.13s this morning, having been above 1.15 earlier this week.”