16 Jan 2015
ECB and grounds for a non disruptive Greek exit - BBH
FXStreet (Guatemala) - Analysts at Brown Brothers Harriman explained that since Greece lost its investment grade status, the ECB has still accepted Greek government bonds as collateral.
Key quotes:
"Greek bonds appear to stand behind around 2/3 of the 41 bln euros that Greek banks have borrowed from the ECB".
"In light of the European Court of Justice preliminary decision earlier this week, and some comments from EC officials, the ECB's role as part of the Troika of official creditors in EMU needs to be re-thought. Even without being part of the Troika, the ECB is powerful. It has warned that if Greece fails to arrive at an agreement with the Troika, and the current agreement expires at the end of next moth, it would no longer be able to accept Greek government bonds as collateral. Moreover, ECB approval for the extension of ELA is necessary."
"The ECB will review the Greek central bank's request for permission to extend ELA funding next week. It will likely approve it. However, after the end of February, if there is not agreement with the Troika, it could refuse such to grant such permission. This would be a financial stranglehold on Greece. As there is no mechanism in the controlling treaties to expel a country from monetary union, this could be the causa belli that leads to Greece's exit."
"We did not think Greece was going to leave EMU in the 2010-12 period, and we still do not think it will leave now. We suspect that the SNB is surprised by the magnitude of the reaction to its abandonment of its cap, in a similar but different way than officials were surprised by the impact of the fall of Lehman. No one can feel comfortable thinking that a non-disruptive Greek exit is possible."
Key quotes:
"Greek bonds appear to stand behind around 2/3 of the 41 bln euros that Greek banks have borrowed from the ECB".
"In light of the European Court of Justice preliminary decision earlier this week, and some comments from EC officials, the ECB's role as part of the Troika of official creditors in EMU needs to be re-thought. Even without being part of the Troika, the ECB is powerful. It has warned that if Greece fails to arrive at an agreement with the Troika, and the current agreement expires at the end of next moth, it would no longer be able to accept Greek government bonds as collateral. Moreover, ECB approval for the extension of ELA is necessary."
"The ECB will review the Greek central bank's request for permission to extend ELA funding next week. It will likely approve it. However, after the end of February, if there is not agreement with the Troika, it could refuse such to grant such permission. This would be a financial stranglehold on Greece. As there is no mechanism in the controlling treaties to expel a country from monetary union, this could be the causa belli that leads to Greece's exit."
"We did not think Greece was going to leave EMU in the 2010-12 period, and we still do not think it will leave now. We suspect that the SNB is surprised by the magnitude of the reaction to its abandonment of its cap, in a similar but different way than officials were surprised by the impact of the fall of Lehman. No one can feel comfortable thinking that a non-disruptive Greek exit is possible."