Final decisions on ECB exit strategy in December, Greek central banker says

The European Central Bank will finalise its strategy for exiting from crisis support measures at its next policy meeting on December 3, Governing Council member George Provopoulos reported.

Speaking to Greek parliamentarians, Provopoulos reported that the ECB's support -- which includes accepting lower-rated debt as security for loans -- would not last forever.

"The ECB before the crisis accepted bonds with a rating of up to A but in the crisis in an effort to provide more liquidity to the banking sector, among other measures, the ECB decided to lower the quality of acceptable collateral to B from A," he said, answering a question about how a downgrade in Greek sovereign debt would affect the economy.

"This is temporary, like the liquidity measures, it is an extraordinary temporary easing. It won't last forever. At some point -- which I can't define at this moment, maybe on Dec. 3 -- we'll know more because at the next Governing Council meeting on Dec. 3, final decisions will be taken on what we call the 'exit strategy'."

"Exit strategy" has been taken to mean how policymakers withdraw stimulus given to the global economy after last year's financial crisis, and the ECB has already signalled it will probably not renew its one-year loans to banks.

Greece's central bank said last week it had advised some Greek banks to show restraint when participating in the ECB's next one-year liquidity injection in December. Greek banks have borrowed about 40 billion euros from the ECB.

Credit agency Fitch has already cut the rating on Greek sovereign debt, and Moody's has put the country on review.

Although the ECB's looser collateral rules for accepting most debt will run until the end of next year, it has already announced a tightening of rules on asset-backed securities.

Provopoulos' comments chimed with those of ECB President Jean-Claude Trichet, who has said December's meeting would be important.

Trichet has also said banks run the risk of becoming addicted to cheap and abundant central bank funds, stressing these will be withdrawn as the situation normalises.

Source: Reuters, Balkans.com Business News