ECB to reject Greek bonds

The European Central Bank on Tuesday said it would suspend the eligibility of Greek bonds as collateral for loans to banks, a day after rating agency Standard & Poor's declared Greece in "selective default."

The ECB's governing council said in a statement that it would "temporarily suspend the eligibility" of Greek debt as collateral in the standard procedure of loaning cash to banks. The announcement was another symbol of the falling market confidence in Greece's long-term ability to pay back its debt.

"This decision takes into account the rating of the Hellenic Republic as a result of the launch of the private sector involvement offer," the bank said, referring to a deal between Athens and its private lenders to write off more than 100 billion euros of the country's debt burden.

The statement added banks that it would start accepting Greek bonds by mid-March, when an insurance scheme backed by the eurozone's 17 members to protect the ECB from losses comes into force. It said banks affected by the decision may still receive loans from their respective national central banks if they meet the qualifications for emergency assistance.

S&P on Monday dropped its rating of Greece to CCC, classified as "selective default," or partially unable to pay back its lenders. Athens' decision to force reluctant bondholders to accept revised payment terms - agreed to by a quorum of their fellow bondholders - amounted to "distressed debt restructuring," according to the rating agency.

acb/slk (AFP, Reuters)