Greece said the downgrade won’t hurt the banking industry. ECB suspended the eligibility of Greek bonds as collateral. EU cancels Friday Euro summit meant to tackle firewall.
Rating agency Standard & Poor’s has classified Greek debt as in “selective default” following the deal it made with creditors to reduce its debts, the BBC informs. Separately, the European Central Bank said it was suspending the eligibility of Greek bonds as collateral for loans to commercial banks. It said this would run until mid-March. The ECB explained that by the middle of next month it would start to accept the bonds again, because a programme for eurozone nations to provide supplementary collateral to insure the ECB against losses is due to come into effect.Banks and other financial firms are being asked by Greece’s government to take a 53.5% loss on their Greek sovereign bonds. The plan was agreed by the Greek parliament last week, and, if backed by Greece’s creditors, it would wipe out 107bn euros (£90bn; $142bn) of the country’s debt.S&P said that when the debt exchange was complete it would assess Greece again and possibly raise its rating.The Greek government said S&P’s move had been expected and added it would not hurt the banking industry. “This rating does not have any impact on the Greek banking system since any likely effect on liquidity has already been dealt with by the Bank of Greece,” the finance ministry said in a statement.The European Union on Tuesday delayed planned talks among leaders later this week on increasing the currency area’s financial firewall against debt contagion.The thorny question of beefing up Eurozone financial defences was meant to have been dealt with over lunch on Friday, the second day of a summit gathering leaders of the 27 EU states in Brussels. A special summit of the 17 Euro currency partners could be held instead within the next four weeks.On Monday, German Chancellor Angela Merkel scraped through a parliamentary vote endorsing a second bailout for Greece but faced a growing backbench revolt against pouring in more money in support of the euro zone.