The European Central Bank said on Tuesday that the Governing Council has decided to temporarily suspend the eligibility of marketable debt instruments issued or fully guaranteed by Greece for use as collateral in Eurosystem monetary policy operations. "This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer," the central bank said in a statement.
The move comes after Standard and Poor's downgraded its rating on Greek sovereign debt to 'selective default' on Monday after the country struck a debt swap deal with its private bondholders last week with an aim to reduce its debts.
The ECB also said the liquidity needs of affected Eurosystem counterparties will be satisfied by the relevant national central banks, in line with relevant Eurosystem arrangements (emergency liquidity assistance).
Further, the ECB said Greece's marketable debt instruments will become in principle eligible upon activation of the collateral enhancement scheme agreed by the Heads of State or Government of the euro area on July 21, 2011, and confirmed on October 26, 2011, together with a number of other measures aimed at assisting Greece in its adjustment programme. This is expected to take place by mid-March 2012, it added.
S&P said that it has lowered its CC long-term and C short-term sovereign credit ratings on Greece to 'SD' or 'selective default.' The rating agency said the Greek government's retroactive insertion of collective action clauses in the documentation of certain series of its sovereign debt on February 23 constituted a "distressed debt restructuring".