November 09, 2005
The ECB Says Enough With The Deficits
Yesterday's story was about the European finance ministers offering some advice to the European Central Bank. Today it looks like the ECB has in store some advice of its own -- and is willing to back it up with the power of its portfolio decisions. From the Financial Times:
The European Central Bank will sharply step up pressure on Italy, Greece and other eurozone fiscal laggards by warning that it will refuse to accept their sovereign debt as collateral if their credit ratings slip.
In an attempt by the ECB to warn European governments about the consequences of overspending, the bank is to state that it will only accept bonds with at least a single A- rating from one or more of the main rating agencies as collateral in its financial market activities, European Union financial policy-makers said. A refusal by the ECB to accept a government's bonds would amount to a humiliating swipe at that government's policies, and make its bonds harder to sell. So far, no eurozone government bond has been excluded, but the ECB's existing list of eligible collateral does not include assets rated below A-.
So far, the ECB has "refused to comment on its plans."
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