The European Central Bank said on Tuesday that it would temporarily refuse to accept Greek goverrnment bonds as collateral for loans to banks in the eurozone after the latest downgrade for Greece.
The ECB’s move will most affect Greek banks which will instead have to borrow from the central bank in Athens.
Greek banks are big holders of Greek government debt, and are also heavily reliant on loans from the ECB to stop them going bust.
This comes after one of the three rating agencies, Standard & Poor’s declared that Greece is in “selective default” because international lenders had agreed to write off more than half of their Greek debt holdings as part of the second EU bailout of the country.
Once that bailout money comes through, in mid-March, Greek government bonds should be eligible for use as collateral for ECB loans again.
S&P will, in theory, end the selective default then, restoring Greek to its junk-level “CC” long-term grade.
But S&P said “huge question marks” still hang over Athens political environment, growth outlook and debt.
Among investors the move was not seen as very significant, though the main Athens share index closed sharply lower.