With capital controls already imposed on Greece, some have wondered if this is as bad as it gets. Unfortunately, as the Cyprus “template” has already shown us, for Greece the nightmare on Eurozone street is just beginning.
As a reminder, over the past few months there have been recurring rumors that as part of its strong-arming tactics the ECB may eventually move to raise the haircuts the Bank of Greece is required to apply to assets pledged by Greek banks as collateral for ELA. The idea is to ensure the haircuts are representative of both the deteriorating condition of Greece’s banking sector and the decreased likelihood that Athens will reach a deal with its creditors.
Flashback to April when, on the heels of a decree by the Greek government that mandated the sweep of “excess” cash balances from local governments to the Bank of Greece’s coffers, Bloomberg reported that the ECB was considering three options for haircuts on ELA collateral posted by Greek banks. “Haircuts could be returned to the level of late last year, before the ECB eased its Greek collateral requirements; set at 75 percent; or set at 90 percent,” Bloomberg wrote, adding that “the latter two options could be applied if Greece is in an ‘orderly default’ under a formal ECB program or a ‘disorderly default.’”
Read moreFor Greeks The Nightmare Is Just Beginning: Here Come The Depositor Haircuts