Moody’s turns Delphic on Greek debt
In downgrading the debt to A2, Moody’s ensured that Greek (and other) banks will still be able to swap Greek bonds for cheap funding from the European Central Bank, assuming that nothing has changed by this time next year when the ECB will only accept bonds rated A-/A3 or above as collateral by at least one agency.
Both Standard & Poor’s and Fitch have cut Greek bonds to BBB-plus this month, meaning if Moody’s cuts Greece to an equivalent level, Greek banks are likely to face difficulties in getting access to liquidity as analysts estimate more than half the collateral they have submitted at the central bank is in government bonds.
Yet Moody’s explained the decision as partly due to its expectation that the ECB will keep accepting Greek debt as collateral, a decision which hinges on Moody’s itself keeping Greece’s rating above the watermark.
Unless of course the ECB backflips and lowers its standards before December 2010, although ECB Vice-President Lucas Papademos has said the euro zone central bank will not bend the rules for Greece.