Greece’s finance minister George Papaconstantinou and central banker George Provopoulos have been making statements following Tuesday’s sovereign rating cut by Fitch to BBB+.
Among the flashes from Reuters (our emphasis):
RTRS – GREEK FINANCE MINISTER SAYS FITCH DOWNGRADE REFLECTS LACK OF GREECE’S CREDIBILITY
RTRS – GREEK FINMIN SAYS FITCH DOWNGRADE DOES NOT REFLECT GOVERNMENT INITIATIVES TO SHORE UP FINANCES
RTRS – GREEK FINMIN SAYS GOVERNMENT WILL DO WHATEVER IT TAKES TO REDUCE DEFICIT
RTRS – GREEN CENBANKER SAYS GREEK BANKS HAVE DEIVISED LIQUIDITY ENHANCEMENT MEASURES OTHER THAN ECB
RTRS – GREEK CENBANKS SAYS THERE IS “SAFE DISTANCE” REGARDING ANY COLLATERAL PROBLEMS WITH GREEK GOV BONDS
RTRS – GREEK FINMIN SAYS FISCAL ADJUSTMENT EFFORT WILL BE JUST. WON’T BURDEN LOW INCOME EARNERS, FAMILIES
RTRS – GREEK FINMIN SAY IT IS OBVIOUS THERE IS ALSO SPECULATION IN MARKETS
RTRS – GREEK CENBANKER SAYS BELIEVES FITCH DOWNGRADE WILL NOT IMPACT GREEK BANK PROFITS
RTRS – GREEK CENBANKER SAYS GREEK BANKS’ NON-ECB FUDNING MEASURES ARE BEING IMPLEMENTED
RTRS – GREEK FINMIN SAYS GOVERNMENT TARGETS TO BROADEN TAX BASE. CUT WASTE FOR VIABLE FINANCES
The more curious comment perhaps pertains to there being “safe distance” regarding any collateral problems with Greek government bonds.
This is presumably a reference to Greek bonds’ eligibility for use as collateral in ECB funding operations.
Under the current emergency collateral rules implemented by the ECB in October 2008, government-debt securities used in that function must be graded at least BBB- , with anything below BBB (i.e. BBB-) subject to a haircut.
The old rules, meanwhile, set a minimum requirement of a single A rating — a level Greek bonds have now clearly fallen below.
So how long will the emergency rules apply for?
As a helpful analyst pointed out to FT Alphaville, in May 2009 the ECB extended the period for these requirements to at least the end of 2010 — although it is still unclear whether these will apply to 2010 auctions maturing in 2011. Effectively, beyond that, it’s really anyone’s guess.
In which case, as it stands, it would take another 3-notch downgrade by Fitch to BB+ before Greek bonds became ineligible for use as collateral at the ECB.
Related links:
Making an example out of Greece - FT Alphaville
The ECB’s delicate clean-up operation - FT Alphaville