Financial conditions in Greece, whilst not at their lows of 2012, are still extremely tight by historical standards. Moreover, conditions have been virtually unchanged since the beginning of 2013, despite all the non-standard measures employed by the ECB. What factors might account for this outcome? The Eurosystem lends to commercial banks against collateral.
The collateral framework defines what is eligible and this is related to an asset’s rating. Greek banks have often found themselves constrained by the amount of eligible collateral. Moreover, haircuts are applied to eligible collateral. That is, a € bond will not necessarily give a bank access to € of refinancing. Greek assets are now rated much lower than they were before the crisis.