This page has been archived and commenting is disabled.

So Much For ECB Prudence: Trichet To Continue Accepting Crap Collateral After 2010

Tyler Durden's picture




 

The ECB is finally realizing that Greece will be a major issue for years if not decades to come. Which is why Jean-Claude Trichet finally put the debate of whether his bank will accept BBB- rated collateral beyond 2010 to rest. The answer is yes. This also takes out Moody's ridiculous A2 Greek rating out of the equation: finally Moody's can vote with its conscience. "It is the intention of the ECB's Governing Council to keep the
minimum credit threshold in the collateral framework at investment grade
level (BBB-) beyond the end of 2010. In parallel, we would introduce, as of January 2011, a graded
haircut schedule, which will continue to adequately protect the
Eurosystem." Considering how well the Eurosystem has been protected to date, we can't wait to see just how well this experiment will play out.

From Market News:

Technical details to the decision will be released after the ECB's
next Governing Council meeting on April 8, Trichet said.

After the collapse of Lehman Brothers, the central banks had
widened its collateral framework to accept BBB- bonds from accepting
only A-, but it previously had said it would return to regular framework
at the end of this year.

However, concerns that Greek debt could become unacceptable as ECB
collateral had sparked speculation that the ECB would prolong the crisis
framework measure or change their cut-off approach to a sliding scale of
hair-cuts.

Under existing rules, a country must have at least one credit
rating above the ECB's threshold in order for its bonds to be eligible
as collateral.

At present, Greek debt would still qualify under the pre-crisis
rules, since it has an A2 rating from Moody's. However, now that
Standard & Poor's and Fitch have cut their rating to BBB+, a downward
revision from Moody's would create problems if the ECB were to return to
its initial threshold.

More direct from the ECB:

Through our Economic and Monetary Union, we have achieved a
considerable degree of cohesion and stability – and we must protect
that achievement. It is within this context that I appreciate the
commitment of euro area Member States, made on the occasion of the last
European Council meeting, to take determined and coordinated action, if
needed, to safeguard financial stability in the euro area.

Let me also take advantage of my presence in front of the European
Parliament to lay out what I already mentioned in the hearing before
the Economic and Monetary Committee on Monday. It is the intention of
the ECB’s Governing Council to keep the minimum credit threshold in the
collateral framework at investment grade level (BBB-) beyond the end of
2010. In parallel, we would introduce, as of January 2011, a graded
haircut schedule, which will continue to adequately protect the
Eurosystem. I will provide the technical details when reporting on the
Governing Council decisions of our next meeting on 8 April.

And to prove just how deluded the ECB is, here is Trichet's conclusion:

The introduction of the single currency just over a decade ago
represents the greatest achievement in the history of European
integration to date – a process that has ensured six decades of peace
and prosperity in Europe.

Something tells us Germany would want nothing more than to undo this "greatestest achievement in the history" more than anything.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 03/25/2010 - 10:34 | 275532 sweet ebony diamond
sweet ebony diamond's picture

JCT is my favorite bankster

Thu, 03/25/2010 - 10:38 | 275533 Advocatus
Advocatus's picture

Still, those things may be an exit strategy to Greece to reinforce their financial system without IMF involvment...

Thu, 03/25/2010 - 10:43 | 275539 lizzy36
lizzy36's picture

Moody's has a conscience?  Wow, one learns something new everyday.

Thu, 03/25/2010 - 10:44 | 275541 Alexandra Hamilton
Alexandra Hamilton's picture

If the ECB could accept crap from the private sector banks, why shouldn't it accept crap from Greece as well. Besides, in the end the same private sector banks will be benefiting from this, because Greece owns them. So, in the end it is a bailout of banks (like DB) and not of Greece.

 

Thu, 03/25/2010 - 11:00 | 275563 markytom
markytom's picture

How come the ECB doesn't talk about competitiveness, which is the real problem with Greece?

If you're really good at making a pigs ear of things, why not join the EU? Of course, this is not meant as a piece of solid advice, rather it is a cry of frustration at being impotently forced to watch so many things done so badly, each in turn, and one after the other. Southern Europe's problem is essentially a competitiveness problem, and not a fiscal one, and if many states have been having growing difficulty with their negative fiscal balances, this is a symptom of the problem, and not its cause. Even in the worst of cases - countries like Greece and Portugal - the rising recourse to fiscal outlays has been a response to lack of "healthy" growth, and the root cause of this continuing difficulty in generating real growth has been the underlying lack of competitiveness, and the inability to export your way out of trouble once the burden of debt starts to rise, so simply pruning the fiscal side isn't going to cure the problem, and by now that simple point should be obvious, I would have thought.

http://globaleconomydoesmatter.blogspot.com/2010/03/why-not-unravel-imf-too-while-were-at.html

Tue, 04/13/2010 - 06:32 | 297803 mark456
mark456's picture

ucvhost is a leading web site hosting service provider that is known to provide reliable and affordable hosting packages to customers. The company believes in providing absolute and superior control to the customer as well as complete security and flexibility through its many packages. cheap vps Moreover, the company provides technical support as well as customer service 24x7, in order to enable its customers to easily upgrade their software, install it or even solve their problems. ucvhost offers the following different packages to its customers

Do NOT follow this link or you will be banned from the site!