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ECB chief reassures Greek banks on collateral

25 March 2010, 13:01 CET
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(BRUSSELS) - European Central Bank president Jean-Claude Trichet said Thursday that the ECB would accept current levels of collateral against loans in 2011, in remarks likely to reassure Greek banks.

He also repeated a call for European unity, as German Chancellor Angela Merkel said in Berlin she would support International Monetary Fund aid to Greece and bilateral loans from eurozone members, but only as a "last resort."

Trichet told a plenary session of the European Parliament in Brussels: "It is the intention of the ECB's governing council to keep the minimum credit threshold in the collateral framework at investment grade level, BBB-, beyond the end of 2010."

The decision means Greek banks will still be able to use Greek government bonds as collateral to obtain central bank funds, a situation which would have changed had the ECB gone back to its initial standards as previously foreseen.

That should make it much easier for them to raise funds and ease some of the pressure on the Greek financial system and in turn the euro which has come under huge pressure as a result of the debt problems in Athens.

Trichet said the central bank would introduce a sliding scale of discounts to be applied to lower grade collateral, probably including Greek government bonds, "to adequately protect the euro system."

Details would be provided after the ECB council's next meeting on April 8, he added.

Greek debt has been sharply downgraded by ratings agencies as the country gets to grips with massive debt and a public deficit that is more than four times the EU limit of three percent of gross domestic product (GDP).

The ECB news was welcomed by economists who said it should help ease tension on money markets that have demanded higher rates to lend money to Greece and Portugal, peripheral eurozone countries in serious financial situations.

Ireland, Italy and Spain are other countries considered by markets to be at risk.

Taken together with Merkel's comments, "I think it is positive for the periphery countries," Royal Bank of Scotland senior European economist Nick Matthews told AFP.

Meanwhile, Trichet called again for European unity in dealing with the Greek financial crisis, saying: "Monetary union in Europe is more than a monetary arrangement. It is a union of shared destiny."

His statement was repeated in four other languages including German, as Berlin comes under intense pressure to contribute to a Greek rescue package.

Matthews said Trichet's announcement on the collateral issue showed "there is obviously a determined and coordinated desire for there not to be any financial instability within the euro area.

"This goes towards helping the EU solidarity," he concluded.

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