The European Central Bank could stop accepting Greek bonds as collateral for loans if Athens restructures its debt and forces losses on investors, the ECB’s chief economist has said. A European Central Bank spokesman confirmed on Thursday a remark by ECB chief economist Juergen Stark, who 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 a decision that allows Greek banks to exceptionally 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 is now in the very uncomfortable position to be potentially forced to refuse Greek collateral paper,” RBS economist Jacques Cailloux commented.