MNI BRIEF: End Credit Ratings For ECB Bond Buys - Ex-Official

The ECB should end its reliance on credit ratings for determining the eligibility of government bonds in its collateral framework as part of its operational framework review, former Bank of Cyprus Governor Athanasios Orphanides said Tuesday.

“Something has not been working in the euro area since the Global Financial Crisis,” he told the Annual Research Conference of the EU Commission today. Orphanides pointed to the wide spreads seen between some 10-year government bonds across the euro zone – including those of France, Italy, Germany and Spain - and the expectation of the Overnight Interest Rate in the euro zone.

The ECB ended its reliance on credit ratings for determining the eligibility of government debt in its collateral framework at the start of the pandemic in spring 2020, but restored it in March 2022, something Orphanides called a “terrible mistake.”

“Yes, we messed up. The issue is how to improve the situation going forward. I look at this as a live issue and I hope when it completes its (operational framework) review it will actually correct this problem,” he said. The ECB's review of operating framework is due to be concluded in Spring of 2024.