The ECB surprised markets at a late hour and announced that Greek government bonds will no longer satisfy as collateral. This hurt EUR/USD.
And what are the implications? The team at Barclays, that already talked about a 15 big figure fall for EUR/USD, now says that the chances of a Greek exit are now probably higher than in 2012:
Here is their view, courtesy of eFXnews:
At its February 4 non monetary policy meeting the ECB’s Governing Council decided to lift the waiver that allowed bonds issued or guaranteed by the Greek government to be eligible at the Eurosystem’s refinancing operations (MRO, LTROs, TLTROs) despite their sub investment grade rating, notes Barclays Capital.
As a consequence, such bonds are not eligible anymore as collateral to the ECB’s regular liquidity operations, starting from the maturity of the current main refinancing operation (MRO), on 11 February 2015.
The following is Barclays’s reaction to the ECB decision:
1- We interpret this decision by ECB’s Governing Council to force Greek banks to a more expensive funding (via ELA) as a ‘nudge’ to the Greek government to speed up negotiations with the EU and announce soon an agreement on a programme. On 11 February, the euro area finance ministers will meet to discuss Greece (Eurogroup) followed by the meeting of Heads of State on 12 February.
2- We would expect some clear signals of what are the intentions of the Greek government and the EU following those meetings. Critically. a decision to fund Greek banks through ELA effectively grants the ECB’s Governing Council the power to turn off the provision of liquidity to Greek banks — a decision that requires a two-thirds majority at the Council
3- Needless to say, this is a crucial decision, which would only be taken if there are no prospects for an agreement on a programme. We believe that such decision will be taken in consultation with the key European stakeholders, including Heads of State, as it would in all likelihood precipitate a Greek exit.
“Overall, we retain the view that an agreement between the Greek government and the EU remains possible, but the probability of a Greek exit is clearly now higher that at any time in 2012,” Barclays concludes.
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